Drug company Novartis was arguably the most admired businesses in its industry for most of the 2000s. It was created in 1996 from the merger of competitors Ciba-Geigy and Sandoz in what was then the biggest takeover in corporate history, valued at $63bn. The deal established a trend for the pharmaceutical industry, and a series of further mergers by competitors pushed Novartis down the rankings a little. Novartis also established a reputation as one of the industry's strongest performers, with a strong suit in innovative tactics and successful new launches. A key factor was the willingness of former CEO Daniel Vasella to adopt aggressive marketing tactics, especially in the all-important US market; and Novartis was the first of the major drug companies to establish a strong position in generic as well as patent-protected pharmaceuticals. It also completed a series of large deals with fellow Swiss group Nestlé, selling its Gerber baby food and medical nutrition businesses, while also agreeing to acquire the food giant's ophthalmology division Alcon for almost $52bn, the largest purchase in Swiss corporate history. Vasella's successor Joe Jimenez has overseen further reconstruction of the group, not least sizeable asset-swapping deals in 2014 withGlaxoSmithKline and Eli Lilly.
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Adbrands Weekly Update 5th July 2018: Novartis confirmed plans to spin off its eyecare division Alcon. It acquired the business in 2011 from Nestle for an extraordinary $50bn, but Alcon has struggled to live up that valuation, delivering several years of disappointing performance. The decision to divest was widely expected. Novartis CEO Vas Narasimhan said Alcon will be spun off to shareholders as a separately traded company next year, with a new HQ established in Novartis' own home country of Switzerland. However, Novartis will itself retain the collection of ophthalmic drugs it acquired as part of the business, leaving the separated company to specialise in devices and surgical equipment. Valuation is expected to come in at around $20bn, significantly less than the price paid, even without the pharmaceuticals unit.
Adbrands Weekly Update 17th May 2018: AT&T and Novartis suffered serious reputational damage after it was revealed they agreed to hire Donald Trump's personal "fixer" Michael Cohen in an attempt to get a better understanding of - and possibly win favour with - the newly appointed president. Cohen appears to have aggressively cold-called numerous companies following Trump's election success, offering to impart inside information on the new President. Ford said they too had been contacted but declined his proposal. Cohen appears to have made himself made a small fortune in the process - he was paid $600,000 by AT&T and an astonishing $1.2m by Novartis. Yet both companies said they had gained no useful insights from the arrangement. Indeed, Novartis said they decided after a single meeting that Cohen offered no value. Yet they continued to pay him a $100,000 monthly retainer, apparently because they feared the repercussions of a lawsuit. "That was the mistake," Novartis' then-CEO Joe Jimenez told Bloomberg. "It was clear [Cohen] oversold his abilities... We should have just definitively parted ways with this guy as soon as we knew he was not going to be a help." More embarrassing still, it turns out that the company to which they made payments for his consultancy was the very same which paid out $130,000 in hush money to former porn star Stormy Daniels. AT&T CEO Randall Stephenson issued a memo to all staff admitting "our company has been in the headline for all the wrong reasons these last few days and our reputation has been damaged... Hiring Michael Cohen as a political consultant was a big mistake." The two top lawyers at AT&T and Novartis respectively who had negotiated the relationship with Cohen have left in the wake of the revelations.
Adbrands Weekly Update 17th Nov 2016: Swiss drugmaker Novartis hinted that it might be considering the sell-off of its substantial ophthalmology division Alcon. It acquired that business in 2010 in a mammoth $51bn buyout from Nestle. However, according to Novartis chairman Joerg Reinhardt, the business "has not developed over the last two years as we had expected". He told Swiss newspaper SonntagsZeitung, “we will keep all options open. In the long run, the question arises whether we are the best owner for Alcon."
Adbrands Weekly Update 24th Apr 2014: There was a sudden burst of M&A activity in the pharmaceutical sector this week, led by a series of transactions between GlaxoSmithKline and Swiss rival Novartis with some assistance from Eli Lilly of the US. Underlying all the current activity in the sector is a move on the part of the bigger groups towards specialisation, instead of the cultivation of a broad collection of products in multiple different segments as has been the strategy in the past. The GSK/Novartis deal comes in three parts. Perhaps the most significant is the merger of both companies' consumer healthcare businesses in a new joint venture, which will overtake Johnson & Johnson as the global #1 in OTC, with revenues of almost $11bn. It is effectively a slow motion acquisition of Novartis's OTC unit by Glaxo. The combined business will retain the GSK name, and the UK group will have management control of the business through a 63.5% shareholding. Novartis has an option to put its own 36.5% stake to GSK after three years. At the same time, GSK agreed to sell its portfolio of current and pipeline oncology drugs to Novartis for $16bn in cash, while also acquiring the Swiss company's vaccines division (apart from flu products) for up to $7.1bn, depending on future performance. In a separate transaction, Novartis announced plans to quit the animal health sector, selling its portfolio of products to Eli Lilly's Elanco for $5.4bn. As a result, the latter will move up to become the global #2 in that sector behind former Pfizer subsidiary Zoetis.
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Free for all users | see full profile for current activities: The businesses which came together to form Novartis had coexisted for over a hundred years before they merged. The group's roots date back as far as 1758 when Johann Geigy-Gemuseus set up shop in Basel, Switzerland, to sell "materials, chemicals, dyes and drugs of all kinds". By the mid 19th-century, his great-grandson, Johann Geigy-Merien had taken over the business, and decided to make the move into manufacturing, founding a factory to make dyes. In 1859, the business began to produce the synthetic dye fuchsine. That same year, a rival Basel business founded by Alexander Clavel also began fuchsine production, and the two companies spent the next two decades in competition, each setting up sales offices around the world. In 1873, Clavel sold out to a group of investors who later incorporated the business as Chemische Industrie Basel, popularly known as Ciba.
Ciba and Geigy were not by any means alone in the dye market. They were joined in 1876 by a third company, Kern & Sandoz, also based in Basel. However the latter's founder, Edouard Sandoz, quickly began to diversify his operations. Breakthroughs in medical science encouraged him to move into pharmaceutical manufacture, and in 1895, the company began production of the fever control agent antipyrine. Four years later, Sandoz expanded again to make the artificial sweetener saccharin. Ciba followed suit, developing antiseptic Vioform and antirheumatic Salen in 1900. Ciba and Sandoz became ever more direct competitors as both companies opened a string of factories around the world in the years before World War I. In 1918, all three companies agreed to pool their international interests to form the cartel Basler IG.
Although they shared research information and other administrative functions, the three companies continued to develop their businesses independently. In 1935, Geigy began to develop a range of insecticides and set up a pharmaceutical research team three years later. Sandoz also moved into agribusiness in 1939. World War II created a temporary disruption of all three businesses, although Switzerland's neutrality protected them from the wholesale destruction that ravaged German and British competitors. In 1946, Geigy introduced the epoxy resin Araldite (now owned by Total subsidiary Bostik). At the same time the company's research scientist Peter Muller perfected the use of DDT as an insecticide, winning a Nobel Prize in 1948.
In 1950, the three companies decided to go their separate ways, dissolving the Basler IG cartel. All prospered during the 1950s and 1960s, with Sandoz expanding rapidly through a series of acquisitions including smaller rival Biochemie (1963), dietetics company Wander (developers of Ovomaltine/Ovaltine and Isostar, in 1967). Ciba and Geigy countered the growth of their former partner by agreeing to merge (as Ciba-Geigy) in 1970, and also jumped on the acquisition trail, buying US seeds business Funk in 1974. Sandoz promptly moved up a gear, acquiring Delmark in 1972, and seed companies Rogers Seed (1975), Northrup King (1976) and Zaadunie (1980). Later that decade, Sandoz moved into specialised construction chemicals with the purchase of American Master Builders and its Japanese counterpart Nisso. Ciba-Geigy diversified into contact lens development and eyecare, forming Ciba-Vision in 1987. Also that year the group formed a partnership with US biotech group Chiron to develop genetically-engineered vaccines. The company also dropped the Geigy from its name, becoming just Ciba in 1992.
The US market was becoming increasingly important to both companies. In 1994, Sandoz acquired the country's foremost baby foods company Gerber, and Ciba took a 50% stake in its partner Chiron. A year later, Sandoz merged its specialty chemicals businesses with those of Hoechst and spun them off as Clariant, in order to focus on pharmaceuticals and nutrition. To strengthen their position in the ever more competitive American market, the two companies agreed to the mammoth Novartis merger in 1996.
The newly created group made its core philosophy that of so-called "life sciences", promising to revolutionise agriculture and other areas through its pioneering work in genetic modification of foods. However, this new technology caused a huge storm with consumers concerned over the possible long-term effects of GM foods. Novartis was forced to drop GM ingredients from many of its food brands in the late 1990s, causing a further storm among the farmers to whom it continued to sell GM seeds. By 1999 Novartis, along with other companies using GM technology, was finding the backlash too hot to handle. As a result, in December 1999, the group announced that it would merge its crops and seeds divisions with AstraZeneca's Agrochemicals arm and spin the resulting company off to shareholders as Syngenta.
Novartis launched a string of new drugs in 2000 and 2001, several of which have become blockbusters. Gleevec, in particular, was an innovative new drug to combat leukemia. The group also launched an equally innovative discount scheme for elderly patients, offering discounts on all its drugs of up to 40%. Gleevec was marketed with an even more generous discounting scheme, provided for free to the poor and on a sliding scale to other patients dependent on income. The group also launched Zelnorm to treat irritable bowel syndrome. However plans to launch the latter in Europe (as Zelmac) were withdrawn mid-year as a result of differences in interpretation between US and European regulators over clinical tests results. Schizophrenia drug Zomaril and allergy treatment Xoliar also suffered development setbacks.
In 2002 the group confirmed that it had acquired a 20% shareholding in ailing Swiss rival Roche from private investment company BZ Group. Novartis described the move as a strategic investment, and was expected to propose a friendly merger at some point in the future. A combination of Roche and Novartis would create a company of approximately the same size as Glaxo Smithkline or Pfizer. The company increased its stake to almost 33% in early 2003. However Roche's controlling shareholders, the Hoffmann family, quickly announced that they would oppose any merger. Novartis acquired further shares in early 2004 giving it exactly a third of its rival, marginally below the level that would trigger a full bid.
In 2004, Novartis confirmed that it was considering a "white knight" bid for French rival Aventis, then facing hostile takeover by smaller competitor Sanofi-Synthelabo. However that route was quickly blocked when the French government was reported to have said it would do "everything in its power" to stop such a deal, which would lead to a loss of French ownership for a French company. See full profile for current activities
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