4 months ago • 2 mins
What’s going on here?
Sanofi announced plans to spin off its consumer healthcare business, and that cost the French pharmaceutical company a few billion overnight.
What does this mean?
Sanofi’s plan to sell off its consumer healthcare business was never going to make the company a quick buck. Quite the opposite: it’s a long-term game plan that could allow the pharmaceutical firm to pour more cash into drug research. And while that may well pay off in the future, Sanofi did need to sacrifice the 32% profit margin target it had set for 2025 as a result. Next year’s outlook, too, ended up roughly 9% worse than analysts expected. Investors can be patient when they need to be, but not this time: they sent Sanofi’s stock down 16% after the news.
Why should I care?
For markets: That’s an expensive decision.
That knock cost Sanofi’s market value €20 billion in a single day, and the firm won’t be able to rest easy for a while. See, investors are already uneasy about companies' risk management during these dicey days of business-bruising high interest rates. What’s more, shaky stock markets and high interest rates aren’t exactly a dream dealmaking environment, which casts some doubt over Sanofi’s ability to make the most of the sale and make decent returns on its resulting investments.
The bigger picture: You win some, you lose some.
In fairness, businesses can’t simply rest on their laurels in this risky environment. Money’s only getting more expensive to borrow, which puts a cap on how much firms can invest in themselves. So while major strategic changes will be painful in the short term, risk-taking companies may emerge from the downturn at the top of the pile. And for investors who manage to spot the most promising strategy adjustments, the future could look just as lucrative.
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