Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

(Corrected )

Novartis AG's consideration of a spinoff or sale of its Alcon eye-care business just got serious; Bloomberg News reported Thursday the company has hired Bank of America to review its options. 

It's eminently reasonable for the company to consider it, as my colleague Chris Hughes and I wrote when the company aired the notion in January. The declining business has become more trouble than it's worth. And Novartis could use the money to supplement its growing generics business, or to bolster its all-important pharma division as its best-selling medicine Gleevec faces generic competition.

The real question is whether Novartis can actually get the thing done. CEO Joe Jimenez said the business could be worth $25 to $35 billion -- already a comedown from the more than $50 billion Novartis paid for it in aggregate. Unless he's genuinely OK with the low range of that estimate, a deal seems unlikely. And while any discount to the purchase price would be  mitigated somewhat by the fact that Novartis will keep Alcon's eye drugs -- which it moved to its pharmaceuticals division last year -- the two-year decline of the remaining business will still hurt.   

Downhill Skiing
Novartis shares are up slightly on the news it hired a bank to consider options for its Alcon eye care business, but the unit's struggles have taken a substantially larger bite
Source: Bloomberg

Before starting to think about selling the unit, Novartis attempted a turnaround, shaking up leadership and injecting extra cash into the company. One of Alcon's divisions showed sales growth in the fourth quarter of 2016. But it was the smaller vision-care unit, which accounts for less than 40 percent of Alcon's sales. The surgery division makes up the rest, and continued to deteriorate in the second half of 2016.

Absent unexpected improvement when Novartis reports earnings next week, the unit's performance won't convince investors or potential purchasers to pay a premium for the business.  

Poke in the Eye
Quarterly sales at Alcon have declined for nearly two years
Source: Bloomberg

The market for Alcon isn't exactly red hot, either. Novartis has weighed selling multiple pieces of the business over the past few years, but hasn't managed to get it done. Valeant Pharmaceuticals International Inc. has been rumored to have put some or all of its Bausch & Lomb unit on the block as it tries to pay off its substantial debt load, but instead has kicked the can by restructuring.

One potential acquirer, Johnson & Johnson, spent $4.3 billion on Abbott Laboratories's eye-surgery business last fall and seems unlikely to jump in the market again. J&J paid about 4 times 2016 revenue in its deal. A similar multiple would net Novartis less than $25 billion for Alcon.

Private equity is an option; but even at a reduced price, a sale could be among the largest buyouts in years. For context, the biggest health-care PE buyout of the past five years was the $5.7 billion deal for Stada Arzneimittel SE announced last week. 

Hefty Hopes
Even at the bottom of Novartis CEO Joe Jimenez's valuation range for Alcon, it would be among the biggest PE deals of the past five years
Source: Bloomberg

This might suggest a spinoff is more likely than a sale. But it's hard to imagine much appetite for an IPO if the unit continues to decline.

One of Jimenez's arguments for Alcon's stand-alone attractiveness -- that there's a scarcity of health-care assets in the $25 to $35 billion market-cap range -- is technically accurate, but a goofy selling point for a company. If market cap influences anybody's investment decision, plunging profitability such as Alcon's surely outweighs it. 

If Novartis manages to get rid of the Alcon-shaped thorn in its side, then it'll likely be at a bargain price. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

(An earlier version of this story published on April 20 used data for the "Poke in the Eye" chart that incorrectly included revenue from eye drugs. These drugs were removed from Alcon and now are part of Novartis's pharmaceutical division. The third paragraph was also updated to reflect this.)

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Max Nisen in New York at

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