Monday, 9 September 2024 Reading time : 2 minutes

Almost a year ago, Novartis spun off its generics division Sandoz into an independent company. The spin-off has been a great success: Since the listing, Sandoz shares have gained almost 50% (including dividends). Not only have they outperformed the Swiss market as a whole (SPI: +13.1%), but they have also outperformed their former parent company Novartis (+17.4%). 

Another success story began one year before the Sandoz listing. On 3 October 2022, ABB spun off its turbocharger division Accelleron. Since then, the shares have become a favourite with investors, with the share price more than doubling (+143%) since the first day of trading. Once again, the spun-off unit has significantly outperformed the market (SPI: +20.8%) and ABB (+98.2%). 

A study by the Harvard Business Review shows that successful share price performance after a spin-off is by no means a given. The study looked at more than 350 spin-offs worth USD 1 billion or more between 2000 and 2020. The data shows that half of the companies had no increase in combined market capitalisation two years after the spin-off. In a quarter of cases, shareholder value is even destroyed. But there are also successful spin-off stories: a quarter of the companies analysed had a combined market capitalisation that was on average 75% higher two years after the spin-off. According to the authors, the key differentiator between the best and worst performers is the development of a long-term value creation strategy for both the spin-off and the parent company – the spin-off alone will not create any added value for shareholders. 

Things get tricky when the spin-off is intended to divest a problematic division. Alcon, for example, became a problem child for Novartis because the eye care division had long struggled with earnings and was unable to meet high expectations. In the spring of 2019, Alcon was finally spun off, burdened with debts of USD 3.5 billion, as can be seen from the 2019 annual results. The stock market debut proved to be difficult, and one year after the spin-off, Alcon shares were trading more than 10% below their initial trading price. 

However, a turnaround seems to be on the horizon in 2024. Alcon has delivered strong quarterly results this year and has rapidly increased its free cash flow. Since the beginning of the year, the shares have gained around 24% and are among the top performers on the SPI and SMI.

All three stocks have hit all-time highs in the last two months. In the wake of recent market weakness, they are trading below their respective all-time highs. The Barrier Reverse Convertible on Accelleron, Alcon and Sandoz offers investors partial downside protection while providing a guaranteed coupon. 

Barrier Reverse Convertible on Spin-offs
10.00% p.a. BRC on Accelleron, Sandoz, Alcon
Barrier: 70%
Swiss Security Number: 135 805 402

Indicative terms

 

Disclaimer
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