Novartis to buy majority stake in Alcon

Novartis announced on Monday that it plans to acquire an additional 52-percent stake in Alcon from Nestlé for $180 per share, or $28.1 billion, taking its ownership in the company to 77 percent. The Swiss drugmaker also proposed to buy the remaining 23-percent stake in Alcon for $153 per share, or $11.2 billion, in a direct merger.

The transaction is the second step in a deal entered into in April 2008, under which Novartis bought a 25-percent stake in Alcon from Nestlé for $10.4 billion.

CEO Daniel Vasella of Novartis noted that the proposed acquisition of Alcon will strengthen the company’s “healthcare portfolio and our position in eye care, a sector with dynamic growth.” Raymund Breu, Novartis' chief financial officer, said ophthalmology had “higher growth rates than many other franchises in the health care sector,” and that the higher growth rates are anticipated for five more years.

Novartis stated that it expects to generate around $200 million in annual cost savings within three years from its current holding in Alcon. Full ownership of Alcon is expected to bring additional savings of $100 million per year, which would be achieved through the “consolidation of duplicate functions and processes.” In 2008, Alcon generated $2.6 billion in revenue from pharmaceuticals.

Alcon reported that its independent director committee is examining Novartis’ merger proposal, and will inform shareholders of its position once the process is completed. Commenting on the news, analysts at Zuercher Kantonalbank speculated that Novartis might have to raise its offer to entice Alcon minority shareholders. However, Sanford C. Bernstein analyst Tim Anderson suggested that Novartis may have an advantage against minority shareholders under Swiss merger law, which requires only a simple majority of Alcon board votes and two-thirds of shareholders to support the deal.

Breu called Novartis' offer to minority shareholders "a fair price," explaining that Nestlé is entitled to a higher price since it is giving up control of Alcon. In addition, Vasella indicated that he is “confident that the deal will eventually go through.” The CEO also added that it “is the right time to simplify Alcon’s ownership to eliminate uncertainties for employees and shareholders.”

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