Novartis Buys Majority Stake in Alcon

On Jan. 4, 2010, Novartis (Basel) and Nestlé began completing their 2008 agreement, under which Novartis will acquire Nestlé's remaining 52% stake in eye-care company Alcon (Hünenberg, Switzerland). Novartis also proposed to obtain the remaining 23% minority stake in Alcon through an all-share direct merger.

Novartis will pay Nestlé $180 per share for its remaining stake in Alcon. This transaction is valued at $28.1 billion. The acquisition is subject to regulatory approvals and is expected to be complete in the second half of 2010.

Novartis acquired a 25% stake in Alcon from Nestlé in 2008 for $10.4 billion, or $143 per share. The two transactions are estimated to cost roughly $38.5 billion. The average per-share cost of the transactions is about $168, which is roughly a 17% premium above what Novartis and Nestlé agreed to be Alcon’s market price in April 2008.

By obtaining a 77% majority stake in Alcon, Novartis expects to save about $200 million in annual pretax cost synergies through shared service agreements, collaborations, and joint ventures. A merger with Alcon could provide additional annual pretax cost synergies of approximately $100 million, mainly through the elimination of public company expenses and the consolidation of duplicate functions and processes.

To attain full ownership of Alcon, Novartis proposed to exchange 2.80 Novartis shares for each remaining Alcon share after it completes the purchase of Nestlé’s stake. Based on Novartis’s closing share price at the end of 2009, the proposal represents an implied price of $153 per Alcon share. The merger would require the approval of the boards of directors of Novartis and Alcon.

Acquiring Alcon would expand Novartis’s healthcare portfolio and improve the latter company’s position in the global eye-care sector, which is growing as the population ages and new markets emerge. Upon completion of the proposed merger, Alcon would become a new eye-care division of Novartis with access to the latter’s global operations, expertise, and resources.

Alcon manufactures specialty medicines for eye diseases such as glaucoma and for eye conditions such as infections and allergies. The company also provides medical devices, contact lenses, and over-the-counter eye-care products. Its US operations are based in Fort Worth, Texas.

Novartis makes medicines to treat eye diseases that Alcon’s products do not address. Its products include Lucentis, a therapy for wet, age-related macular degeneration.