Novartis division Alcon spinoff ousts Baer from Swiss benchmark SMI

Novartis has estimated Alcon's value at around 25 billion Swiss francs ($25 billion), while some analysts predict an initial market capitalisation of 21 billion francs ($21 billion) to 23 billion, implying shares worth from 43 to 47 francs.

ZURICH: Novartis's spinoff of its eye care division Alcon, set for Tuesday, April 9, marks the largest Swiss stock deal in a decade and forces a reshuffle of the benchmark Swiss Market Index (SMI) as private bank Julius Baer gets booted out.

Novartis has estimated Alcon's value at around 25 billion Swiss francs ($25 billion), while some analysts predict an initial market capitalisation of 21 billion francs ($21 billion) to 23 billion, implying shares worth from 43 to 47 francs.

Read Also: Novartis division resubmits USFDA application for biosimilar Pegfilgrastim

By contrast, Baer's value has tumbled by a third in a year to 9.3 billion francs. It will instead be included in the SMIM index, replacing Aryzta, SIX Swiss Exchange said after Tuesday's market close.

Dominated by Nestle, Novartis and Roche, the SMI is Switzerland's most important index. Membership is based on market capitalisation, adjusted for the free float of readily tradable shares in its constituents.

Alcon is being spun off in a one-for-five share deal announced by Novartis last June as it focuses on new drugs rather than the surgical devices and contact lenses Alcon makes.

Read Also: Novartis to face lawsuit over doctor kickbacks

Joining the SMI may boost demand from funds focusing on the top Swiss companies. Yet Alcon's inclusion means healthcare and medical technology will weigh even more heavily on the SMI.

Novartis's weighting had been capped 18 per cent, but with Alcon, the two will account for up to 21.5 per cent of the SMI, Zuercher Kantonalbank analysts estimated on Wednesday.

Novartis's biggest owners - BlackRock, the Sandoz family, Capital Research Global Investors and Vanguard Group - will have similar holdings in Alcon, between 2.5 per cent and 4.5 per cent.

"We anticipate incremental buying of Alcon shares by some funds seeking to build a full-size position, offset by others not wanting to own a non-pharma eyecare company," Jefferies analyst Peter Welford said.

Novartis bought Alcon's eye surgery and contact lens portfolio in stages through 2010 for $52 billion from Nestle, only to see it lose ground to competitors as sales and profitability slipped.

Read Also: Novartis to pay $310 million for assets from inflammation specialist IFM

In surgical equipment, Alcon competes against Johnson & Johnson, Germany's Zeiss and Bausch in a $9 billion per year market. Rivals in vision care, worth $14 billion annually, include J&J, Cooper and Bausch.

In 2016, a new Alcon head, Mike Ball from Hospira, redoubled research and marketing spending to resurrect revenue, before Novartis chief Vas Narasimhan decided to shed the division.

The last comparable-sized Swiss listing was in 2010 when oil driller Transocean floated on the same day its Deepwater Horizon rig exploded in the Gulf of Mexico.

Read Also: USFDA approves Novartis' oral drug Mayzent to treat multiple sclerosis