Novartis to consider spinning off Fort Worth’s Alcon eye-care unit

Alcon employs about 4,000 workers at its campus off Interstate 35W in south Fort Worth.
Alcon employs about 4,000 workers at its campus off Interstate 35W in south Fort Worth. Star-Telegram archives

Novartis, the Swiss pharmaceutical giant that acquired Fort Worth-based Alcon in earlier this decade, signaled that it may divest most of the business.

After more than a year of efforts to turn around the eye-care company, Europe’s second-largest drugmaker Wednesday said it will review options for the embattled division, from retaining it to spinning it off with an initial public offering.

Novartis stripped eye drugs from the unit last year, leaving it with surgical equipment and contact lens operations. Still, Alcon’s profit plummeted 31 percent.

Chief Executive Officer Joe Jimenez said that while Alcon’s contact lens business has shown improvement in recent quarters, the company decided to look at what’s best for shareholders.

“We will take 2017 to do that and be back with an update later in the year,” Jimenez said in an interview on CNBC.

In recent months, Novartis considered selling parts of Alcon, including the division that made devices for eye surgery, people familiar with the matter said. A spinoff or IPO may now be the best option as finding buyers has proven to be challenging, the people said.

The company weighed selling its contact lens operations in 2015, people with knowledge of the discussions had said previously.

Novartis said sales at Alcon declined 3 percent to $5.81 billion last year as revenue from surgical equipment fell. This year, the sales may remain mostly flat or grow by a “low single-digit” percent, the company said. Core operating income plummeted to $850 million.

Alcon employs about 4,000 workers at its campus near I-35 and I-20 in south Fort Worth.

Jimenez signaled in a conference call that the business could command a valuation in the range of $25 billion to $35 billion, making it an “attractive” asset for investors.

The Swiss company had made improving operations at Alcon one of its five priorities in 2016. It changed CEOs, appointing Michael Ball to replace Jeff George a year ago, and injected funds to bolster the division’s customer service and to make small acquisitions as it sought to rekindle sales.

“We’re starting to see a turn on that business,” Jimenez said. “As long as Alcon returns to growth, the average growth rates and average margins in the industry, we don’t anticipate at this time when we do the impairment testing, we don’t anticipate a loss.”

Under the stewardship of Jimenez’s predecessor Daniel Vasella — who oversaw a string of acquisitions including the purchase of a stake in crosstown rival Roche Holding — Novartis in 2008 acquired a 25 percent stake in Alcon for $11 billion from Nestle SA as a first step in taking over the business. The investment was aimed at reducing Novartis’s reliance on pharmaceuticals as new drugs faced delays and sales of other medicines were being eroded by cheaper versions.

Jimenez, who took the helm in February 2010 while Vasella stayed on as chairman, acquired a majority stake in the eye-care company from Nestle for $28.3 billion a few months later, and then paid another $12.9 billion in April 2011 for the remainder.

‘Decent’ growth

Things began souring in 2015, with Alcon’s performance impaired by a decline in surgical equipment sales in the U.S. and in emerging markets, as well as increased competition from generics for some eye treatments.

Jimenez told investors in October 2015 that Novartis was doing a “deep analysis” of Alcon’s businesses, and that he hoped to come up with a plan “to get this business back to a decent growth rate.”

But the turnaround, which Jimenez had hoped to see in 2016, has “taken a bit longer,” the CEO told investors at a conference in San Francisco earlier this month.

This article includes material from Star-Telegram archives.

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