Novartis (NVS) announced today that it has completed the divestment of its animal health division to Eli Lilly and Company (LLY) for approximately $5.4 billion.
The transaction was initially announced in Apr 2014. Novartis expects to record a pre-tax gain of approximately $4.6 billion in the first quarter of 2015.
Novartis generated sales of $1.1 billion in 2013 from this division while sales through the third quarter of 2014 were $0.9 billion.
We remind investors that Novartis had undertaken a reorganization of its portfolio earlier in 2014. Apart from divesting its animal health business, Novartis entered into an agreement with GlaxoSmithKline (GSK) in Apr 2014 to divest its vaccines business (excluding flu) to Glaxo. On the other hand, Novartis would acquire Glaxo’s oncology products. The agreement also provides Novartis with opt-in rights to Glaxo’s current and future oncology R&D pipeline. Novartis expects to close the deal with Glaxo by the first half of 2015.
Novartis had also divested its blood transfusion diagnostics unit to Grifols S.A. in Jan 2014.
We view the reorganization steps as positive for the company. These will broaden Novartis’ portfolio and enable it to focus on its core capabilities of pharmaceuticals, eye care and generics, besides contributing immensely to the top line. Margins are also expected to get a significant boost.
On the other hand, the acquisition of Novartis' animal health business will strengthen Eli Lilly’s Elanco’s product portfolio, augment its manufacturing and R&D capabilities, and expand its global commercial presence substantially.
Novartis, a large-cap pharma, currently carries a Zacks Rank #3 (Hold). Investors looking for a better-ranked stock among the large-cap pharmas may consider AbbVie, Inc. (ABBV). The stock currently carries a Zacks Rank #1 (Strong Buy).
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