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Novartis hires B of A to review Alcon options

April 22, 2017

Novartis (NVS) looks like it’s moving closer to selling or spinning off its Alcon (ACL) eye-care business. On Thursday, Bloomberg reported the Swiss company tapped Bank of America to review its options when it comes to the potential deal due to underperforming revenues.Novartis has been considering options for its eye-care division since at least January, when the company announced it intended to review its options with the business. In January, Chief Executive Officer Joe Jimenez said all options are on the table when it comes to the division, which posted flat fourth-quarter sales and an operating loss of $120 million, according to Reuters. Alcon has been hurt by poor surgical equipment sales, slower than anticipated growth of its intraocular lens business, as well as patent expirations on its drugs.

Novartis acquired Alcon from Nestle as part of a $52 billion deal.

Jimenez and Novartis are considering options for the beleaguered eye-care business as it prepares for expected growth in 2018 when newly approved drug sales take off and, particularly, as the company prepares for the patent expiration of cancer drug Gleevec. If Novartis places a “for sale” sign on Alcon, the business could be worth between $25 and $35 billion, well below what Novartis paid for it in 2010. Bloomberg’s Max Nisen predicted Alcon will continue to disappoint in earnings, which means potential buyers won’t be convinced to pay a premium for the company.

“The market for Alcon isn’t exactly red hot, either. Novartis has weighed selling multiple pieces of the business over the past few years, but hasn’t managed to get it done,” Nisen said.

Because of the potential financial losses from a sale, Nisen speculated that Novartis is more likely to spin off Alcon into a stand-alone business. Although, Nisen said this too will be fraught with risks due to the consistent underperformance of the division. That might impact investors willing to support an initial public offering of the company.

Another negative Alcon has weighing on it is fallout from a gender discrimination lawsuit that was settled last summer for $8 million.

Novartis has attempted to turn around Alcon. Last year, Novartis tapped former Hospira executive Michael Ball to help turn Alcon around. At the time, Novartis said it plans to grow Alcon’s business by focusing on its “core surgical and vision care business.” The company said it plans to shift Alcon’s pharmaceutical products, which generated $3.8 billion in revenue in 2015, to Novartis’ pharmaceutical division.

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