Novartis AG buys all outstanding shares of Alcon Inc.

Novartis AG buys all outstanding shares of Alcon Inc.

Novartis AG aims to get full ownership of Alcon Inc. through the purchase of a 52% stake in the U.S. eyecare company from Nestlé SA and by buying out minority shareholders, in a deal that will bring the Swiss drug maker much closer to its goal of becoming a global health-care conglomerate.

Getting a strong foothold in the market for eyecare products is part of Novartis's strategy of branching out into fast-growing areas of health care to make up for slowing sales of branded prescription drugs. The Swiss group is also investing heavily to build its generic drugs and vaccines businesses, two sectors with double-digit annual sales growth.

If the deal goes through as planned, Novartis will have spent a total of $49.7 billion on Alcon, marking the biggest deal in Swiss corporate history, ahead of crosstown rival Roche Holding AG's purchase of biotechnology company Genentech for $46.8 billion last year.

Novartis, based in Basel, is paying Nestle $28.1 billion, or $180 a share, in cash to bring its Alcon holding up to 77%. It plans to finance the deal through the issuance of up to $16 billion in debt, and from current cash. Pending regulatory approval, Novartis expects to conclude the deal in the second half of 2010. Novartis bought 25% of Alcon two years ago.

The Swiss drug maker is also proposing to take out Alcon minority shareholders by merging Alcon into Novartis in a share swap. Offering 2.8 Novartis shares for each Alcon share, this implies a price of $153 for each share held by the public. The merger requires approval by the boards of both companies, as well as two-thirds approvals by shareholders of both companies.

Minority shareholders probably won't be pleased about being offered a lower price for their shares than Nestlé, and the independent directors representing them will almost certainly try to extract a higher price, analysts said.

But under Swiss takeover law--which applies in this case because both Alcon and Novartis are incorporated in Switzerland--Novartis has the upper hand. Once it buys Nestlé's 52% stake, the drug maker will be able to use its 77% Alcon stake to vote the merger through even if minority holders oppose the deal.

Novartis Chief Executive Daniel Vasella told reporters Monday that he considers the offered price fair. In part, the price paid to Nestlé is higher, because it allows Novartis to gain control of Alcon, he said.

For its part, Alcon said in a statement that its independent directors are evaluating the offer, and noted that it represents a 15% discount to the price that Novartis is paying Nestlé.

Alcon is best known to consumers for its contact lens solutions, but most of its $6.28 billion in sales for 2008 came from devices used in eye surgery and from medicines for eye diseases such as glaucoma.

Novartis expects to generate around $200 million in annual pre-tax cost synergies from owning 77% of Alcon, and a further $100 million should it succeed in obtaining full ownership of Alcon. Nestlé said it will use the proceeds from the deal to launch a 10 billion-Swiss-franc ($9.66 billion) share-buyback program later this year.