Roche discounts shares on Novartis stake sell-off bet

The speculations that Novartis AG will sell its 14.1-billion-dollar stake into the market has increased thanks to the Roche Holding AG voting shares discount.

Bloomberg reported that one of the analysts working for Louis Capital Markets – Ben Kelly – said that Roches voting shares have been pushed to the lowest price compared to its non-voting stock since at least 1989 by traders. Mr. Kelly also commented that this is a sign traders are trying to push Novartis AG to sell its 33%-stake in the equities. According to Bloomberg and the data gathered by it, such a discount of Roches shares can be considered abnormal, because for more than ten years now its voting shares have traded at a price higher than the average one.

The two-year growth, responsible for restoring 4.67 trillion dollars to the Stoxx Europe 600 Index is considered by analysts, enough of an argument to convince Novartis AG to sell the stake.

Last month the Chief Executive Officer of Novartis AG – Joe Jimenez – announced that shares were undervalued by the market, but this months 7%-drop shows the risk of sitting on stock. One of the analysts working for Barclays Plc. – Michael Leuchten, said on this occasion: “Theres definitely pressure on him to do something. This stake doesnt do anything for them. From a pure financial perspective, you would want to liquidate that stake. Investors would want them to do it.”

Spokesmen of both Roche and Novartis refused to comment on Novartis holding.

More than ten years ago the former Chief Executive Officer of Novartis – Daniel Vassella tried to persuade its rival Roche to merge. The attempt was unsuccessful though.

Novartis AG has a market value of about 207.8 billion dollars, which makes it one of the largest companies in Europe. It owns about 6% of Roche Holding AG, which equals to 53.3 million voting shares. Louis Capital Markets Ben Kelly said: “If theres potential for a bid on Roche then voting rights are very valuable, but the likelihood of that is extremely low. It feels like Novartis wants to get rid of this, especially at current levels. Novartis is coming under pressure from shareholders to get value out of this.”

However, Roches competitor doesnt really need to sell the stake. This year it has returned 23% and had about 7.3 billion dollars in cash and equivalents as of September. Novartis CEO Mr Jimenez has said that the company is planning a 10-billion-dollar purchase, which will consolidate it and make the business more stable.

There are several options for Novartis. It could either sell the stake back to Roche or a certain investor, or sell the stakes over the next months or years on the market. The stock could also be resold in a block trade. Data gathered by Bloomberg report that such a sale would become one of the 10 biggest block trades of all times.

According to Bloomberg, the current share price of Roche Holding AG is 1.12% up, and its one-year return rate is 27.63% up.