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Tuesday / June 25.
HomeminewsAlcon Respond to Novartis Takeover Offer

Alcon Respond to Novartis Takeover Offer

A major controversy has erupted with accusations and threats being hurled over the announcement by health care group Novartis that it intends to complete the purchase of Nestle’s remaining 52 percent stake in eye care company Alcon which would mean a merger of Alcon into the portfolio of Novartis.

The controversy is over the terms of the buyout with Novartis offering minority shareholders a much lower price than its offer to Nestle. Novartis, the Swiss pharmaceutical giant, has made a USD$40 billion (AUD$44.6 billion) play for the fast growing eye-care market, aiming to take over Alcon, the world’s biggest company in a sector driven by an ageing population.

Combined, Alcon and Novartis would have about 70 per cent of the global eye health sector, the drugmaker said at the time.

Novartis announced a deal with food giant Nestle last year to buy about a quarter of Alcon for USD$10.4 billion (AUD$11.6 billion), with an option to purchase Nestle’s remaining 52 per cent stake from last month (January 2010). The cash from the deal is expected to boost Nestle’s ability to make takeovers. Novartis said it would acquire the 52 per cent stake for USD$28.1 billion (AUD$31.3 billion) and that it was offering to pay another USD$11.2 billion (USD$12.5 billion) for the remaining Alcon shares held by minority shareholders. This values the complete purchase of the eye care firm at USD$49.7 billion (AUD$55.4 billion).

“Novartis intends to gain full ownership of Alcon Inc. by first completing the April 2008 agreement with Nestle SA to acquire a 77 per cent majority stake in a global leader in eye care,” Novartis said. It would then enter into an all-share deal with Alcon for the outstanding 23 per cent minority stake.

The group said it would cut jobs following the acquisition, although the “strong growth outlook in eye care is anticipated to compensate for integration-related workforce reductions”. Minority shareholders of Alcon could put up some resistance as its independent committee has pointed out the offer proposed by Novartis was 15 per cent less than the USD$180 a share paid to Nestle.

Andrew Weiss of Vontobel Bank said he expected Novartis to improve its offer. Novartis said it would pay for Nestle’s stake with available cash by borrowing up to USD$16 billion (AUD$17.84 billion).

Whilst the Basel-based group has the upper hand Alcon shareholders still hold out hopes that it may improve the offer. Under Swiss law, Novartis can force through the deal once it takes majority control from Nestle as mergers require approval of two thirds of shareholders and a simple board majority.

“Novartis has taken the gloves off and claims that since this is not a tender offer, minority owners have no option but to approve the deal, since Novartis will soon control Alcon’s board,” Kepler Capital Markets analyst Tero Weckroth said.

While Alcon, founded in 1945 by two pharmacists in Texas, is listed on the New York Stock Exchange, it is incorporated in Switzerland and is thus bound by law there.That means Novartis could leverage its 77 percent ownership once it has finished buying the Nestle stake, leaving a legal challenge after a deal closure as the only apparent recourse for Alcon minority shareholders, Morgan Stanley analysts said.

At one point, Novartis stock was down 1.5 per cent at 54.20 Swiss francs, making its offer to minorities of 2.8 Novartis shares for each remaining Alcon share worth USD$147 per share, well below the USD$180 it is paying Nestle. The offer had initially been worth USD$153, based on 30 December prices.

An independent committee of Alcon’s board of directors, in response to Novartis’ merger proposal, has declared its disappointment with Novartis’ alleged attempt to evade minority protection principles under the Swiss Takeover Code and regulations under the New York Stock Exchange in what the committee has deemed a “coercive takeover bid”, Alcon announced in a press release.

This follows an investor conference call during which Novartis stated that, if Alcon’s independent committee and board of directors were to reject the merger proposal, Novartis would then impose the terms of the merger after it has completed its acquisition of 77 per cent of Alcon’s issued shares, according to the release.

“Such a unilateral action would clearly be inconsistent with the minority protection principles upon which Alcon established itself and Alcon shareholders rely,” Alcon said in the release.

Under Swiss corporate law, the merger proposal must be approved by a majority of Alcon’s board of directors, with “interested” directors abstaining. If board representatives from Novartis, Nestle and Alcon collectively abstain, approval by the independent director committee would be required to approve the merger, according to the release.

At press time, Alcon’s independent committee had not notified the company’s shareholders of its formal position.