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January 5, 2010

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Novartis eyes total buyout of Alcon

SWISS drug maker Novartis aims to buy the rest of United States eye care group Alcon for US$39.3 billion, including a majority stake from Nestle, to diversify away from prescription drugs.

Novartis said yesterday it would exercise an option to acquire a 52 percent stake in Alcon from Nestle, the world's largest food group, for US$28.1 billion, boosting its holding in Alcon to 77 percent. The Swiss drug maker bought an initial 25 percent stake in 2008.

Novartis, which had been widely expected to snap up the stake, also plans to buy out the 23 percent held by Alcon minority shareholders for US$11.2 billion, going for full control of the group.

Novartis and rival drug makers such as GlaxoSmithKline and Sanofi-Aventis are pushing into areas like consumer health care and generics as they face the biggest loss of patent protection in history.

Jeffrey Holford, an analyst at stockbroker Jefferies in London, said Novartis needed full control of Alcon to achieve its planned synergies and would likely end up paying more.

The fixed exchange ratio proposal of 2.80 Novartis shares for each remaining Alcon share is less generous to minorities, amounting to US$153 per share compared with the US$180 agreed with Nestle.

"What we are seeing here is the starting point of a negotiation. I think they'll end up paying more for it," Holford said.

Alcon said its independent directors' committee was reviewing the Novartis offer, but noted that minorities were being offered about 15 percent less than what Novartis is paying Nestle.

Novartis CEO Daniel L. Vasella told a conference call: "It's an excellent opportunity to acquire the world leader in eye care," adding the two companies had complementary portfolios and Alcon could benefit from Novartis' wide geographic reach.

"It's a great strategic fit and I'm very optimistic about the outlook for the business," said Vasella.

Novartis said it expected to complete the deal in the second half of the year, funding it from available cash resources and up to US$16 billion of external debt financing.

It will also ask its shareholders to approve the issuance of 98 million new shares to pay for the Alcon minority shares, together with 107 million shares held in treasury.

Novartis said it expects about US$200 million of annual pretax cost synergies within three years after closing with the 77 percent stake through shared service agreements, collaborations, joint ventures and other business arrangements.


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