Roche shareholders are due to vote on November 26 on the agreement to repurchase 53.3 million Roche shares from Novartis. While Ethos agrees that the exit of Roche’s main competitor from its capital makes sense, it considers that the option chosen is not in the interest of minority shareholders given that the historic controlling shareholder will see his voting rights increase from 45% to 67.5% without having to make any investment.
Ethos regrets that it is still not possible for shareholders to intervene at the extraordinary general meeting on November 26 due to the Federal Council's ordinance on Covid which still allows companies to hold their general meeting (AGM) behind closed doors. In this context, the Ethos Foundation publicly communicates its doubts about the transaction proposed by the board of directors of Roche.
Ethos believes that the exit from the capital of a direct competitor of Roche is rather good news for the shareholders, especially as Novartis holds 33.3% of the voting rights, which can potentially be used at future AGM to serve its own interests rather than the interests of Roche. However, Ethos considers that the option that has been chosen for this exit from the capital is not favorable to holders of Roche non-voting equity securities for the following reasons:
- The transaction, which involves repurchasing 53.3 million shares in order to cancel and destroy them subsequently, will be entirely financed by the issuance of debt. While Ethos does not call into question Roche's ability to continue to invest in the future, in particular in research and development, Ethos considers that it is not in the interest of all stakeholders to increase the debt by CHF 19 billion with the sole aim of destroying capital.
- This increase in debt will increase the power of the historic shareholder. Although the share of market capitalisation held by the family pool will only increase from 8.3% to 8.9%, its voting rights will raise from 45% to 67.5% without having to make any financial investment. The family pool will thus exceed the threshold of two-thirds of the voting rights, which will allow it to have all the resolutions approved at the AGM, including those requiring a qualified majority. In addition, selective share buybacks do not comply with Ethos guidelines, as they are detrimental to minority shareholders.
Ethos considers that Roche should have taken this opportunity to put the repurchased shares back on the market. Many investors would have been prepared to exchange their non-voting equity securities for shares which would have given them voting rights. Indeed, the important changes in the shareholding structure that will result from the cancellation of the shares will benefit the family pool while the holders of non-voting equity securities and the other holders of shares with voting rights will hold more than 90% of the market capitalization but only 24.9% of the voting rights.