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Following Novartis Deal, Roche Will Have Greater Flexibility, Says Roche Chairman

Following Novartis Deal, Roche Will Have Greater Flexibility, Says Roche Chairman
Roche's strategy of buying back almost one third of the stocks with voting rights from rival Swiss drug maker Novartis, worth a total of about $20.7 billion, will allow the company to exercise a higher level of strategic flexibility, according to Roche's Chairman Christoph Franz.
Roche announced the deal earlier this week which the company says will free it up from ownership connections to a significant rival that has strategic veto power while remaining inactive in the face of powerful Roche family shareholders.
According to the comments made by Franz during an interview published on Saturday in the Swiss newspaper Finanz und Wirtschaft, the financing of the deal would be possible for Roche without having any impact on its spending capabilities for research and development work as well as for acquisitions.
Novartis will be paid for the deal through bridge financing at the initial stage while financial tools such as bonds and others issued in the longer term will then be used by the company to refinance the debt.
"Our net debt is almost zero. It is very important that we can raise the substantial debt without compromising operational and strategic flexibility with regard to our core business," Franz said.
"We can continue our focus on research and development, we can continue in-licensing and acquisitions as we have done in the past years. We are not losing any freedom as a result of this transaction. Quite the opposite," Franz added.
Franz stated that the current position, with the repurchased shares, no longer required, would allow Roche to proceed without the requirement for Novartis' permission.
"A key reason for us is that decisions requiring a two-thirds majority at the Annual General Meeting can only be made with the approval of a major shareholder such as Novartis," he said.
"Although there was no specific cause for concern, this new situation is now clearer."
Franz however added that it did not mean that Roche would start on a track for making large acquisitions.  
"We believe that smaller bolt-on acquisitions are the right thing for us to do to strengthen innovation within the company," Franz said.
"Also, in the medium and longer term, the transaction with Novartis would indeed give us more freedom to issue equity. But our policy of being very cautious with major acquisitions is not changing."

Christopher J. Mitchell

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