RPT-DEALTALK-Novartis may nudge up bid for rest of Alcon

Wed Jan 13, 2010 1:00pm EST

 (Repeats to add link to related Reuters Insider TV item)
 
 (For more Reuters DEALTALKS, click [DEALTALK/])
 
 * Novartis can force deal but risks bad publicity, lawsuits
 * May offer more, but not as much as it paid for majority
 * Higher offer would echo Roche tactics in Genentech takeout
 
 By Sam Cage
 ZURICH, Jan 13 (Reuters) - Novartis (NOVN.VX) will likely
nudge up its lowball bid to minority shareholders in eyecare
group Alcon ACL.N to push a deal through cleanly, even though
it appears to hold all the trump cards.
 All eyes are now on an assessment by an independent
committee of Alcon directors, widely expected to say the
Novartis price is too low. But if needs be, the Swiss drugmaker
could simply replace the committee members to force through a
deal.
 "The question is: Is the offer adequate? And there I think
there is still some room for improvement," said Andrew Weiss,
analyst at Swiss bank Vontobel.
 Novartis is offering 2.8 of its own shares for each
outstanding share in Alcon, valuing the outstanding 23 percent
of the U.S. group at about $147 per share, a discount to its
closing price on Tuesday of $153.46.
 Both are significantly lower than the average $168 per share
Novartis is paying to buy a 77 percent stake from Nestle
(NESN.VX) and the $180 agreed for the purchase of the second
tranche of that deal. Novartis bought the first, 25 percent
stake for $143.18 per share.
 "$168 -- that caps the discussion as to how much they should
be rewarded," said Weiss. "If the board does not comply then I
think Novartis are going to say: 'That's the law.'"
 Alcon, though listed in New York, is incorporated in
Switzerland where the law does not require that any squeeze out
of minorities is concluded at the same price paid for the
majority.
 Once the Nestle deal is concluded Novartis could -- as
majority shareholder -- simply replace the independent Alcon
directors to force through the deal.
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Graphic on Novartis' bid for Alcon minorities:
here

Factbox on the deal: [ID:nLDE60B1RD]

For Reuters Insider TV item see:
here
nload.etv.thomsonreuters.com/p/video/3/2010/01/12/FMS_PROD_68366
_450.flv  
 
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 NOT FAIR
 Some investors have already cried foul and a Masschusetts
pension fund has sued Novartis, Alcon and Nestle over the deal.
 "Novartis is using its de facto status as Alcon's majority
and controlling shareholder to ram the proposed merger through,"
Massachusetts Bricklayers and Masons Trust Funds said in its
court filing.
 "The proposed merger, however, is the very antithesis of an
entirely fair transaction," the $95 million pension fund added.
 But such lawsuits cannot actually prevent the merger and
most analysts expect Novartis will end up paying a touch more
than its initial bid, originally worth some $11.2 billion, to
push the deal through and avoid more bad publicity.
 One source familiar with the deal, who declined to be named
due to direct involvement in the transaction, said replacing the
independent directors was "not a comfortable situation" and a
small increase could avoid a lot of trouble.
 "Ultimately I think Novartis can push through the merger,"
the source said. "That could be -- a lowball bid to give the
possibility to the committee of independent shareholders a
chance to play their role."
 
 GENENTECH PRECEDENT
 The Alcon deal could mark the swansong of two senior
Novartis executives, CEO Daniel Vasella and finance chief
Raymund Breu, keen to push through the transaction at more
favourable terms to secure their legacy.
 That would echo last year's events at Novartis' Swiss rival
Roche (ROG.VX), whose $47 billion buyout of U.S. biotech
Genentech marked a changing of the guard from experienced hands
to younger Chief Executive Severin Schwan. [ID:nL1227320]
 The normally reserved Breu -- who has worked for Novartis
and one of its predecessors, Sandoz, for some 35 years -- is due
to retire in March and has had an unusually high profile since
the deal was announced earlier this month. 
 There is also speculation that the more garrulous Vasella, a
medical doctor who is one of the longest-serving leaders in the
European pharmaceutical industry, could soon hand over the reins
to one of the group's younger and up-and-coming executives.
 "They can't totally ignore the fact that Alcon is a
U.S.-listed company," said Helvea analyst Karl-Heinz Koch. "They
could in theory push it through, but they may ultimately raise
the price to the average price Nestle received."
 (Editing by Jon Loades-Carter)

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