Novartis becomes Alcon's majority owner

Sep 15, 2010

With word that Novartis has completed its $28.3 billion acquisition of Nestle S.A.'s shares of Alcon, investment analysts watching the drama unfold expect Novartis and Alcon's Independent Directors Committee will attempt to resolve differences.

Novartis announced Aug. 26 that it had completed its purchase of about 156 million shares of Alcon from Nestle, adding the confectionery giant's 52% share to its existing 25% to obtain majority ownership of the leading ophthalmology company.

The transaction, which was set in motion with the April 6, 2008, agreement between Nestle and Novartis, required Nestle's five designated members to resign from Alcon's board of directors. It also meant that the Aug. 16 election of the five Novartis-designated directors became effective.

However, the IDC, which represents minority shareholders-many of whom are Alcon employees-balked at the lower price they were offered compared with Nestle.

Novartis said Jan. 4 it would pay Nestle about $180 per share in cash, but offered minority shareholders a stock deal then valued at $153 but which analysts say has since declined to about $137.45.

IDC Chairman Thomas G. Plaskett, who has called the minority shareholders offer "offensive," pledged in an Aug. 26 statement to work toward reaching an agreement with Novartis.

"We look forward to negotiating a deal that affords fair value to Alcon's minority shareholders," Plaskett said. "An agreed transaction is in the best interests of all stakeholders and is clearly preferable to protracted litigation, which would delay critical steps in the integration process. However, we are ready to defend the rights of Alcon and its minority shareholders if Novartis refuses to negotiate a fair deal."

Analysts said they expect to see Novartis raise its offer, both because Alcon's year-to-date figures merit that, and because Novartis won't be able to capitalize on $100 million to $300 million in synergies until the companies are merged. Jefferies & Co. analyst Josh Jennings, MD, said Novartis also faces pressures on its equity currency and its debt rating if the Alcon deal remains unresolved for long.

"This, in turn, could force another visit to the capital markets in order to close what will then be a widening gap between the 2.8 conversion value and implied value issued on Jan. 4 ($153 per share)," Jennings said in an Aug. 27 research note.

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