ZURICH Novartis AG's NOVN.VX offer to buy out minority shareholders in Alcon Inc ACL.N is "grossly inadequate," independent directors of U.S. eyecare group said on Wednesday, setting the stage for a prolonged battle.
Swiss drugmaker Novartis, which has a deal to buy a majority of Alcon from Nestle SA NESN.VX, has made what Alcon's independent directors regard as a lowball offer originally worth $11.2 billion for the remaining 23 percent of Alcon.
"The analysis and numbers in the Novartis proposal are grossly inadequate," Tom Plaskett, chairman of Alcon's independent director committee, told Reuters.
Analysts have said Novartis, which is buying Alcon to diversify and insulate against losing patent protection on big selling medicines, such as blood pressure drug Diovan, is paying too much and have criticized the deal's complicated structure.
The independent Alcon directors had been widely expected to say the Novartis price was too low but, if necessary, the Swiss group could simply replace the committee members to force through a deal.
"It is their duty to defend the interests of the minority shareholders," said David Kaegi, analyst at Swiss wealth manager Sarasin, adding the Alcon directors' statement was no surprise in that respect.
"I still think Novartis, at the end, will be forced to better the offer, though it won't be higher than the blended price of $168," Kaegi said.
Plaskett said he had spoken with minority shareholders and the universal feeling was the Novartis offer was unfair. Alcon staff and management, who own some 7 percent of outstanding shares, could end up leaving the company as a result.
"They are very upset and disturbed that this proposal is a cram down," he said. "I think it represents a great risk for Novartis in terms of retaining key personnel."
The committee said it would "take all appropriate and available actions to protect minority shareholders and prevent unilateral removal of independent directors." Plaskett added he was hopeful the dispute would end in a negotiated deal.
ALCON TRADING AT PREMIUM
Novartis is offering minority shareholders 2.8 of its own shares for each outstanding Alcon share, equivalent to about $149 per share at latest prices. Alcon rose 0.8 percent to $154.64 by 1612 GMT.
Both are lower than the average $168 per share Novartis is paying to buy the stake from Nestle and the $180 agreed for the purchase of the second tranche of that deal. Novartis bought its first 25 percent stake for $143.18 per share.
The directors calculated a fair Alcon share price, unaffected by the Novartis bid, of $164.35, compared with Novartis' assessment of $137.
Novartis, whose shares fell 0.5 percent to 55.70 Swiss francs, was not available to comment.
Alcon, though listed in New York, is incorporated in Switzerland, where the law does not require a squeeze-out of minorities to be at the same price paid for the majority.
The directors called Novartis's tactics coercive and disrespectful to minority shareholders, many of whom are Alcon employees who have helped create the value in the company.
In a letter to Novartis chief executive Daniel Vasella, independent committee member Thomas Plaskett said the Swiss group had implied it could simply replace those directors once it has completed buying Nestle's shares.
"It is important that you understand that the committee's response today is only the first of potentially many steps that the committee may take in the fulfillment of its obligations to defend Alcon and the minority shareholders," Plaskett wrote.
(Additional reporting by Catherine Bosley; Editing by Will Waterman and Louise Heavens)