Novartis’s Vision For The Future? Spin Off Alcon

The vision of an independent Alcon is getting closer to reality. As part of its year end earnings release, Novartis (NVS) revealed many more details about the upcoming eye care spinoff which is expected to be completed in the first half of this year. It seems the target is actually sometime in April, but first shareholders will have their say on the transaction at the upcoming February 28th AGM. No drama here though and the transaction is expected to be approved.

Novartis also revealed the expected distribution ratio. Shareholders (of both shares and ADRs) will receive 1 Alcon share for every 5 Novartis shares owned. That means a shareholder with 100 NVS shares will walk away with 20 ALC shares. The spinoff is expected to be tax free to both US and Swiss shareholders and according to SIX, the Swiss bourse, Alcon will be placed in the Swiss Market Index of Switzerland’s 20 largest companies. In the US, it is expected to trade on the NYSE under the ticker ‘ALC’.

Information was also released about Alcon’s new board of directors:

Alcon Board of Directors to be led by Chairman Designate, Mike Ball. The Directors are as follows: Lynn Bleil, Arthur Cummings, M.D., David J. Endicott, Thomas Glanzmann, D. Keith Grossman, Scott Maw, Karen May, Ines Pöschel and Dieter Spälti.

The good news for investors is that Alcon showed some signs of growth during 2018:

Alcon net sales were USD 7.1 billion (+6%, +5% cc) for the full year. Surgical sales grew 7% (cc), with growth across all key product categories, driven mainly by AT-IOLs and consumables. Vision Care sales grew 3% (cc), mainly driven by growth in contact lenses with continued double-digit growth of Dailies Total1.

The company’s main business lines are surgical and eye care which includes contact lenses. For 2019, Alcon’s revenues are expected to grow in the low to mid single digits while operating margin will expand. Competition is fierce in these markets, but the company is launching new products and expanding overseas where more people are expected to begin accessing eye care. Additionally, the company thinks that overall demographics are favorable worldwide due to many aging populations. For some additional information on the board and the overall spinoff, check out the company’s Alcon spin off ‘brochure’.

The spinoff has been talked about for a long time and we even first discussed it way back in 2017. It doesn’t look like the new unit will be worth the ~$50b that Novartis paid for the business back in 2010 though. Perhaps with a ‘focused management team’ and better ‘capital allocation’ the new company can recapture some of that lost value. For Novartis, the completion of the spinoff will be another step in its ‘transformation’ which also included unloading its OTC business to Glaxo. We will see.

Disclosure: Author holds no position in any stock mentioned.