Novartis To Buy Out Alcon From Nestle

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Novartis To Buy Out Alcon From Nestle


Written by John G. Reynolds
Friday, 11 March 2011

Novartis AG (NVS) offered to buy the rest of Alcon Inc. (ACL), the world's largest eye-care company, from Nestle SA (NSRGY) and minority shareholders for about $39.3 billion, as Chief Executive Officer Daniel Vasella expands into eye surgery.

Nestle will sell a 52 percent stake to the Basel, Switzerland-based drugmaker for an average of $180 a share, or a total of $28.1 billion, Novartis said today in a Hugin statement. Novartis also offered to pay 2.8 of its own shares for each remaining Alcon share held by the public, equivalent to about $11.2 billion, the company said.

Novartis is exercising a call option the Swiss companies agreed to in April 2008. By buying Alcon, the maker of Opti-Free contact lens cleaners, Novartis expands a portfolio of eye-care businesses including Ciba Vision and the Lucentis blindness medicine. Alcon had an operating profit margin of 35 percent in 2008 compared with Novartis's 22 percent. The drugmaker is counting on newer products to fuel growth as patents on the hypertension drug Diovan and the Gleevec leukemia treatment, its best sellers, start to expire in the U.S. in 2012.

"It's an excellent opportunity to acquire the world leader in eye care," Vasella said on a call with reporters. "Overall I think it's a great strategic fit and I'm very optimistic about the outlook of the business."

Nestle divested a 25 percent stake to Novartis in July 2008 for $10.4 billion.

Share Issue
Nestle sold 23 percent of Alcon in a 2002 initial public offering for $2.2 billion. Novartis is offering to buy out those shares, which trade on the New York Stock Exchange, for the equivalent of $153 apiece.

Alcon declined $1.65, or 1 percent, to close Dec. 31 at $164.35 on the New York Stock Exchange. Novartis fell 20 centimes, or 0.35 percent, to 56.3 Swiss francs as of 9:17 a.m. in Zurich.

Novartis will ask shareholders to approve the issue of 98 million new shares, which together with 107 million already held in treasury, will be used to finance the acquisition of the Alcon minority shares, the company said.

The offer to buy out the minority shareholders is "a good move," said Helvea SA analyst Karl Koch.

"It generally is good news in the sense that it alleviates concerns that they would not be able to pay the cost of capital because now they get full control and can realize the full synergies and that'll also help earnings," he said.

Cash Holdings
Novartis had $14.2 billion of cash as of Sept. 30. It said it will fund the purchase through available cash and external debt financing. The company expects synergies of about $300 million within three years after the completion of the deal.

Novartis's Atlanta-based Ciba Vision unit makes contact lenses and lens-care products. The company also sells the Lucentis drug to treat macular degeneration, the leading cause of blindness in people over the age of 50.

"Alcon would round off the portfolio and the deal makes sense," said Falcon Private Bank's Dieter Buchholz, who manages $12 billion and owns shares of Nestle and Novartis, before the transaction was announced.

Nestle, the maker of Nescafe coffee, will have multiplied the value of its investment in Alcon by more than 100 times over 33 years. The company, based in Vevey, Switzerland, spent $280 million to buy Alcon in 1977, spokeswoman Nina Backes said. Nestle aimed to offset its risk in developing markets by expanding in the U.S. as inflation boosted food costs, according to Nestle's Web site.

Texas Pharmacy
Alcon's roots go back to a pharmacy Robert Alexander and William Conner opened in Fort Worth, Texas, in 1945. The name is a combination of the first parts of each of their last names. The company, now based in Hunenberg, Switzerland, got 46 percent of revenue in 2008 from devices and products used in eye surgery. Its products include treatments for eye infections and glaucoma, and machines used in cataract operations.

Last Updated ( Friday, 11 March 2011 )