Novartis Sells Blood Unit to Grifols for $1.68 Billion

Novartis AG agreed to sell a blood-transfusion diagnostics unit to Spanish health-care company Grifols SA for $1.68 billion as the Swiss drugmaker slims its portfolio.

The transaction, Novartis’s largest asset sale since divesting the Gerber baby food brand in 2007, will probably be completed in the first half of next year, the Basel-based drugmaker said in a statement today.

Novartis is conducting a strategic review to see which market segments it wants to stay in, Chief Executive Officer Joe Jimenez said today. He said the company now has three with global scale: pharmaceuticals, the eye-care business Alcon and the generics arm Sandoz. Novartis has said it wants its businesses to be among the industry leaders or will otherwise consider divesting them.

“With the vaccines and diagnostics division also failing to make any reasonable profits in recent times, falling into loss in 2012, it seemed likely that this division would be the first to be focused on,” Jeffrey Holford, an analyst at Jefferies, said in a note to clients today.

The company has identified its animal-health business as a top candidate for a sale, people familiar with the matter said last week. Novartis is also considering selling its over-the-counter medicines unit and the vaccines operation, they said. No final decision on those assets has been made, the people said.

Vaccine Speculation

The blood-transfusion operation is part of the drugmaker’s struggling vaccines unit, which has been subject to speculation it may be sold. The Swiss drugmaker acquired the business when it bought vaccine maker Chiron Corp. in 2006. The Emeryville, California-based division improves transfusion safety through testing for infectious disease and had sales of about $565 million in 2012.

Today’s disposal may be a sign the rest of the unit will eventually be sold, Jefferies’s Holford said, estimating a price of more than $6 billion. Eric Althoff, a Novartis spokesman, declined to comment on whether the vaccine unit is for sale.

Novartis rose less than 1 percent to 71.55 Swiss francs in Zurich. The stock has returned 25 percent this year. Grifols shares gained 4.5 percent to 32.36 euros in Madrid.

“This is a good deal for Novartis,” CEO Jimenez said in a phone interview today. “It allows us to focus on our strategic businesses. It also provides good value for us on what is a good business but not a business we had decided to grow aggressively.”

Detecting Infections

Grifols, Europe’s largest maker of blood-plasma products, said it expects annual revenue from its diagnostics division to approach $1 billion after the purchase, which should boost earnings in the first year. The Barcelona-based company said it has a $1.5 billion bridge loan that’s fully subscribed in equal parts by Nomura, Banco Bilbao Vizcaya Argentaria SA and Morgan Stanley.

The two companies reached a deal quickly thanks to their relationship based on a 2011 agreement for Novartis to sell some products in the U.S., according to Grifols Deputy Chief Financial Officer Nuria Pascual.

“They had identified its blood diagnostics unit as non-core, while we wanted to grow our business and boost our geographic footprint,” Pascual said in a phone interview. “Grifols will continue to explore new smaller acquisitions in an opportunistic way as our leverage ratio will remain under control.”

The transaction doesn’t include a related diagnostics unit that’s part of Novartis’s pharmaceutical business nor the Genoptix division, the Swiss drugmaker said.

Novartis was advised by Goldman Sachs Group Inc. while Nomura advised Grifols.

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