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Novartis could refuel M&A machine with $14B Roche stake sale

Novartis is discussing options with banks for selling its near $14 billion stake in rival Roche, potentially providing cash for new deals, though a sale is not imminent, according to two people familiar with the situation.

Novartis built up its one-third stake in Roche's voting stock between 2001 and 2003 under former chairman and CEO Daniel Vasella, as a basis for a possible merger that never happened.

Ever since Vasella's departure in 2013 there has been speculation Novartis would sell its holding, equivalent to around 6 percent of all Roche shares, ending a years-long standoff between the two Swiss rivals.

Pushing ahead with a sale now could make sense for current Novartis Chief Executive Joe Jimenez, who is under pressure to improve growth after disappointments with the company's eyecare unit Alcon and new heart drug Entresto.

"Sooner or later the stake will be sold and Novartis is talking to banks about how it could be done. But nothing is imminent," one source said.

He added a so-called order book process with selected investors would probably be the "cleanest" process for divesting the stake, which is worth some 13.4 billion Swiss francs ($13.7 billion).

The second source said Novartis had shown increased interest in planning for such a sale in recent weeks.

Novartis, which describes its one-third stake in Roche's voting stock as a financial investment with a strategic component, declined to comment. Roche also declined to comment.

Industry analysts said Novartis needed to revitalize its healthcare business following recent difficulties, which could explain the decision to look at the Roche investment as a way to raise cash to acquire new products.

"Novartis is in a time of need, having had setbacks with both Alcon and Entresto, and investor sentiment is languishing," said Bernstein analyst Tim Anderson, who sees acquisitions in the biotech or ophthalmology fields as "distinctly possible."

In the past, Jimenez has discussed the idea of selling the Roche stake but, in an interview with Reuters three years ago, he said he would want a premium price, reflecting the difficulty of recreating such a large position in the open market.

That premium demand, however, seems to have fallen by the wayside, since Novartis is now investigating having banks collect purchase offers within a predefined price range from selected investors.

The idea of Novartis selling the stake in this way was first reported by the weekly Sonntagszeitung newspaper.

Analysts have suggested in the past that one option for unwinding the holding would be for Roche to buy the Novartis stake as part of a share repurchase program. Roche, however, has shown little interest in this idea and has traditionally viewed share buybacks as a low priority.

Roche bearer, or voting, shares slipped 0.8 percent on Monday while its most widely traded equity was off 1 percent. Novartis stock was flat.

Members of the Hoffmann-Oeri family still hold a majority of Roche's voting stock.