Novartis reaches $12.9-billion deal for full ownership of Alcon

Novartis announced Wednesday that it reached a deal to buy the remaining 23-percent stake in Alcon that it doesn't already own for $12.9 billion, bringing the total amount paid to acquire the eye-care company to around $51.6 billion. "With this step Novartis takes full ownership, becoming the global leader in eyecare, a rapidly expanding, innovative platform based on the growing needs of an aging population," commented Novartis chairman Daniel Vasella.

The Swiss drugmaker noted that under the agreement, which is expected to close in the first half of 2011, it will offer up to 2.8 Novartis shares and a cash amount that will in total equal $168 for each outstanding share of Alcon. The terms improve on those originally offered by Novartis to minority shareholders in January, when the company agreed to acquire an additional 52-percent stake in Alcon from Nestlé for $180 per share.

At the time, the drugmaker offered 2.8 Novartis shares for each Alcon share, which was rejected by the eye-care company's independent director committee (IDC) as "grossly inadequate." Novartis said that it would push the merger through under Swiss law and both parties turned to legal experts for judgments, with Alcon's IDC establishing a $50 million fund to cover legal costs. Helvea analyst Karl-Heinz Koch noted that now a deal has been reached, it "removes uncertainty around this transaction which has weighed heavily on the Novartis share price in recent months."

Novartis said that its board of directors approved the deal with minority shareholders, while the IDC recommended approval of the merger to the Alcon board, which has also backed the transaction. The drugmaker noted that following completion of the merger, Alcon will become the new eyecare division of the company, with annual sales of almost $9 billion, and will be led by current Alcon CEO Kevin Buehler.

The acquisition is expected to lead to cost savings of around $300 million, up from $200 million that would have resulted from Novartis owning a 77-percent stake. "The growth synergies here are significant, as Alcon will be the eyecare development engine for our best-in-class research organisation and will leverage the Novartis market access capabilities outside the US," remarked Novartis CEO Joe Jimenez.

Novartis plans to use a share buyback worth around $5 billion and $900 million in cash to finance the acquisition, which will dilute its earnings after the deal closes by 3 percent per share. However, some analysts expressed disappointment with the new deal, saying that a full cash offer would have helped reduce earnings dilution. "The market will be slightly disappointed. But the fact that they plan a share buyback will reduce the dilution," remarked Bank Sarasin analyst David Kaegi. UBS analyst Fabian Wenner called the news "positive for Novartis," adding that "the dilution will be a lot lower than expected."

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