SWISS PHARMACEUTICALS group Novartis yesterday offered minority shareholders in Alcon the equivalent of $11.2 billion (€7.76 billion) in stock to buy out their shares, lifting the total acquisition cost for the US eyecare group to almost $50 billion.
The deal also triggered speculation about how Nestlé, Alcon’s majority owner, would use the $28.1 billion being paid by Novartis for its remaining 52 per cent.
Nestlé said it would devote some cash to a SFr10 billion (€6.74 billion) share buyback, succeeding a SFr25 billion scheme expiring in mid-year.
But analysts suggested the Swiss foods group could divert part of the proceeds to acquisitions – including possibly entering the battle for Cadbury, the UK confectionery group facing a hostile bid from Kraft Foods.
Nestlé, which has said it would avoid big takeovers for bolt-on deals, declined to comment. “This divestment of our interest in Alcon will enable our management to concentrate on accelerating the development of Nestlé’s position as the world’s leading nutrition, health and wellness company,” said Nestlé chief executive Paul Bulcke.
Andrew Wood, a sector analyst at Sanford C Bernstein, said: “Management has been very clear that its current guidance of SFr2 billion to SFr3 billion for MA [mergers and acquisitions] annually still stands and has not changed.”
But some analysts argued the SFr10 billion buyback was smaller than expected, given the $38.5 billion total proceeds for Nestlé’s two-stage disposal of its original 77 per cent Alcon stake. They drew attention to L’Oréal, the French cosmetics company in which Nestlé retains a big minority, and the Mead Johnson infants’ nutrition business, as other possible targets.
Novartis chairman and chief executive Daniel Vasella justified acquiring the Alcon minorities to provide clarity and simplicity.
“This is the right time to simplify Alcon’s ownership to eliminate uncertainties for employees and shareholders.”
The deal will turn Novartis into a leader in the growing and highly profitable eyecare sector by merging its Ciba Vision subsidiary with the much bigger Alcon. Combined proforma 2008 sales amounted to about $8.5 billion, with significant growth potential given the rising incidence of eye problems in an ageing population.
But Novartis could face difficulties winning round Alcon minorities, given its offer of 2.8 Novartis shares for each Alcon share – or the equivalent of $153 – is significantly lower than is being paid to Nestlé. – (Copyright The Financial Times Limited 2010)
