Novartis eyes Alcon in all-Swiss deal

Nestlé will sell at least 25 per cent of Alcon to pharmaceutical giant Novartis Keystone

The Swiss pharmaceutical giant Novartis will acquire an $11 billion (SFr11.06 billion) stake in the ophthalmic group Alcon from Nestlé.

On Monday Basel-based Novartis said it would take over 74 million shares, or 25 per cent of Alcon, for $143.18 per share.

The purchase is the first half of a potential two-part deal – either side will have the right to execute a contract for Nestlé’s remaining 52 per cent interest in Alcon at $181 per share, bringing the potential total value of Novartis’s investment to around $39 billion.

That second part of the deal would happen between January 2010 and July 2011 although Novartis said it could opt out if there were a material change in the business.

“The margins are higher than our pharma business and are obviously very attractive,” said Novartis chief executive Daniel Vasella.

The company is eager to diversify its business in the face of increased competition from generic drug makers.

Novartis says it will finance the cash transaction using existing reserves and $5.5 billion worth of short-term debt. It does not expect the arrangement to face resistance from Switzerland’s financial regulators.

“We don’t expect any antitrust hurdles to the deal, because the two businesses are very complementary,” Vasella said.

Novartis also indicated that it would not attempt to take over the remaining 23 per cent interest in the medical and consumer goods manufacturer, which is publicly traded.

Big deals

The deal is not the first instance of horse-trading between the two Swiss giants. In 2007 Novartis sold the baby food brand Gerber and its medical nutrition business to Nestlé under similar terms.

Both firms say the Alcon arrangement will be good for business.

Nestlé chairman and chief executive Peter Brabeck said the deal would give Alcon a new minority shareholder “whose activities are closely aligned with its own business.”

The company has been spinning off its non-food businesses in recent years, a strategy that analysts have welcomed.

“We consider Nestlé’s move as a positive step in its transformation into a ‘health, wellness and nutrition’ company,” Vontobel analyst Claudia Lenz said.

Nestlé said it was open to using its newfound cash to make its own “strategically necessary” acquisitions, according to spokesman François-Xavier Perroud.

“We are a pragmatic company,” he said. “If there is an opportunity, we will take it.”

“A very rich price”

According to analysts, Nestlé may be getting the better end of the bargain.

Monday’s deal represents “a very rich price” despite Alcon’s solid market position, according to Andreas Theisen, an analyst with German-based bank WestLB.

Novartis shares fell on news of the pact and the company said it expects its debt rating to be downgraded.

Nevertheless, Europe’s second-largest pharmaceutical company is optimistic about the long-term implications of the deal. It says that majority ownership of Alcon would allow it to take advantage of synergies with its existing business divisions.

Alcon is a medical and consumer goods manufacturer. It produces cataract surgery equipment as well as the Opti-Free line of contact lens solutions, popular in the Unites States.

The Zug-based firm earned a profit of $1.6 billion on sales of $5.6 billion in 2007. Novartis’s existing eye care division posted revenues of $2.5 billion during the same period.

swissinfo with agencies

Earnings

Nestlé
Sales: SFr107.6 billion
Profit: SFr10.65 billion

Novartis
Sales: SFr40.01 billion
Profit: SFr13.2 billion

Alcon
Sales: SFr5.53 billion
Profit: SFr1.51 billion

Nestlé

Nestlé was founded in 1866 and sells its products in 130 countries around the globe. It is among the world’s 30 largest companies.

The company manufactures around 10,000 different products and employs about 250,000 people. It sells over a billion products every day.

Novartis

Novartis was created in 1996 through the merger of Ciba-Geigy and Sandoz, and is currently organized into four divisions:

Pharmaceuticals (prescription medicines)

Sandoz (generic prescription drugs)

Vaccines and Diagnostics

Consumer Health

It is facing increased competition from generic drug makers and says it is looking to diversity its business portfolio.

Alcon

Alcon was founded in Fort Worth, Texas in 1945, and was purchased by Nestlé in 1977. The company was spun off in 2002 and is listed on the New York Stock Exchange.

It operates in 75 countries and employs nearly 15,000 people.

Alcon is incorporated in Hünenberg, in canton Zug, and has offices in Forth Worth.