Novartis Buys 20 Percent of Roche 39848

Novartis Buys 20 Percent of Roche

BASEL, Switzerland--Swiss pharmaceutical company Novartis AG (NYSE:NVS)purchased a 20-percent voting stake in Swiss drug rival Roche, parent of RocheVitamins, from Swiss banking group BZ Gruppe for 151 Swiss francs ($87 USD) pershare or a total of $4.8 billion Swiss francs ($2.78 billion USD). The pricepaid was a 5-percent premium over the May 5 closing price of 143.75 francs.Roche reported that the 32 million shares purchased represent about 3.7 percentof all issued Roche securities, both voting and nonvoting.

According to analysts, the purchase does not buy Novartis very much, althoughthe investment comes with little risk. Speculation is that Novartis wants toexpand its U.S. presence, and Roche does not offer much to that end. CatherineArnold, an analyst with Sanford C Bernstein investment firm, said that this moveis most likely not the beginning of a takeover. "[Novartis] doesn't seemuch of a downside, and if Roche some day goes into play, they'll have a betterseat at the table."

Novartis stated that it would not seek any changes to Roche's board ofdirectors, a pursuit undertaken by BZ Gruppe, which announced previously that itwould sell off shares of Roche if attempts to gain a seat on Roche's board wereunsuccessful. BZ Gruppe head Martin Ebner wanted the seat to affect what he saidwas poor business behavior by Roche, namely misleading shareholders and othersby claiming a stable and financially sound business in financial reports."We said that if we did not see any improvement in behavior in terms ofgood corporate governance, we would feel free to sell the rest of our stake inRoche," he said.

The transaction has alarmed a labor union that represents the employees ofboth companies, as many see job cuts as a possible result of any future mergerbetween the two companies. "Many jobs would fall victim to an alliance orespecially a merger of Novartis and Roche," the Gewerkschaft Bau andIndustrie union said in a statement. Novartis employs 69,000 people in 142countries, while Roche has 64,000 in 150 countries.

Both companies downplayed such speculation. "This is a long-termfinancial investment, which is also strategic in nature," said Novartischief executive officer Daniel Vasella. He added that Roche has some viableareas of long-term prospects that Novartis is eager to explore. Novartis chieffinancial officer Raymond Breu noted, "It's a good financial investment,and it opens up strategic possibilities, but there aren't any concrete plans forcollaboration."

As of May 7, the price of Roche shares rose 7 francs ($4.05 USD) or 5.3percent to 139.50 francs ($80.70 USD). Novartis shares on the New York StockExchange (NYSE) rose 60 cents to $39.40.

For more information, visit www.novartis.comor www.roche.com.