Novartis wins Alcon with cash sweetener

ZURICH (Reuters) - Novartis AG wrapped up its long-awaited buyout of the remainder of U.S.-listed eyecare group Alcon Inc for $12.9 billion, after sweetening its original offer with cash.

The logo of Swiss drugmaker Novartis is seen on the top of an office building at the company's plant in Basel January 28, 2009. REUTERS/Arnd Wiegmann

The Swiss drugmaker is hoping the Alcon deal, worth some $52 billion in total, will help it diversify and give it protection against patent losses on big-selling medicines such as blood pressure drug Diovan.

Novartis has been trying to clinch 100 percent ownership of Alcon since the start of the year, but its original all-paper offer of 2.8 shares for each Alcon share met stiff resistance from Alcon’s Independent Director Committee (IDC), which repeatedly dismissed it as “grossly inadequate.”

The merger consideration will now include up to 2.8 Novartis shares and will be topped up, if necessary, with cash to ensure Alcon shareholders receive $168 per share, the average price Novartis paid earlier this year for Nestle’s 77 percent stake in Alcon.

The Basel-based group said that if the value of 2.8 Novartis shares is more than $168, the number of Novartis shares will be reduced accordingly.

“The overhang of the Alcon acquisition has been the key restraint on the Novartis share price in 2010,” said Deutsche Bank analyst Tim Race. “With improved visibility now available and the share buyback soaking up the dilution, we expect Novartis shares to outperform.”

“The announcement ... removes uncertainty around this transaction which has weighed heavily on the Novartis share price in recent months. This together with the reactivation of the share buyback program should support the Novartis share price,” Helvea analyst Karl-Heinz Koch said.

Novartis’ move completes the final stage of a lengthy process to get full control of Alcon, known for its contact lens solutions but also the dominant player in the multibillion-dollar market for intraocular lenses, small lenses implanted in the eye to correct problems focusing.

Alcon is also No. 1 in cataracts, an area that is set to expand due to aging populations. It also makes contact lenses and other eyecare products.

It competes with Abbott Laboratories’ Advanced Medical Optics, Bausch & Lomb, which was bought by private equity firm Warburg Pincus in late 2007 for $4.5 billion, and Cooper Cos, whose stock hit a four-year high on Wednesday.

Analysts said Novartis’ acquisition of Alcon would likely make the eyecare space more competitive and may make Cooper a more likely target in the future.

“Cooper has made itself a target by being able to manufacture well and market well a new silicone hydrogel lens,” said BMO Capital Markets analyst Joanne Wuensch.


Novartis said it was restarting a 10 billion Swiss franc ($10.3 billion) share buyback program, suspended in April 2008, to minimize dilution to Novartis shareholders from the Alcon deal.

Novartis shares were 6 percent higher at 56.85 Swiss francs by 1501 GMT, outpacing a 1.7 percent rise in the STOXX Europe 600 healthcare index. This values the Novartis bid for the minority stake at around $166 per Alcon share.

Alcon shares were up 1.7 percent at $165.22.

Novartis’ decision to restart share buybacks is part of a trend among European drug firms to return cash to shareholders. AstraZeneca and Novo Nordisk have similar programs, and GlaxoSmithKline CEO told Reuters on Monday his group was likely to restart stock repurchases.

The IDC recommended the offer to the Alcon board after getting a fairness opinion from independent financial adviser Greenhill & Co, and the Alcon board also got a separate fairness opinion from Lazard, Alcon said in a statement.

Analysts at brokerage Evolution said the unanimous backing from the Alcon board was likely because the IDC now felt it was fair that all shareholders got the same average amount.

Novartis earlier this year completed its buy of a 77 percent stake in Alcon from Nestle and paid the Swiss foods group on average of $168 per Alcon share. But the drugmaker refused to budge from its offer to remaining Alcon shareholders, which throughout the year was worth less than the average price paid to Nestle.

Novartis argued it would be able to push the deal through under Swiss merger law, but Alcon’s IDC still threatened to fight Novartis in the courts to get a better price.

Novartis said the deal was likely to be completed during the first half of 2011, though it is conditional on U.S. regulatory clearance and shareholder approval.

(Additional reporting by Ben Hirschler in London and Lewis Krauskopf in New York; Editing by Hans Peters and David Holmes)

$1=.9677 Swiss Franc