INDIA BUSINESS WORLD - APRIL 1st - APRIL 15th - 2008
NOVARTIS AGREES TO BUY NESTLE’S ALCON STAKES FOR $39 B
NOVARTIS AG has agreed to buy Nestle AG’s 77% stake in US company Alcon in a deal worth up to $39 billion to boost its eye care business, the Swiss drugmaker said.
Novartis will acquire a first, 25% stake in Alcon for $11 billion and is set to buy Nestle’s remaining 52% for a fixed price of $28 billion between January 2010 and July 2011.
“The margins are higher than our pharma business and are obviously very attractive,” Novartis chief executive Daniel Vasella told reporters. Novartis is keen to broaden its business from prescription drugs, which face increasing competition from generic medicines and a tougher path to markets, to non-traditional areas like vaccines, eye care and generics.
Novartis, Europe’s second-largest pharmaceuticals company by market capitalisation, would pay a 22% premium to Alcon’s closing price if it went ahead with the purchase of the second tranche.
Nestle can force through the purchase of the second tranche, but Novartis can opt out if there is a material change in the business, Novartis said.
The acquisition of the first stake values Alcon at 22.8 times expected 2008 earnings and the possible second step at a 2010 multiple of 22.5, according to Novartis. The deal represents “a very rich price in our view despite the double-digit growth projected for the company (Alcon),” WestLB analyst Andreas Theisen said in a note.
Novartis shares fell 2.6% to 51.05 francs, under pressure from the high price of the deal and possible impact on earnings.
Alcon shares opened 1.7% higher in New York, at $151.00 compared to a purchase price for the initial deal of $143.18 per share. Novartis would buy the second tranche at $181 per share. POSITIVE FOR NESTLE: Nestle, the world’s largest food group, said the transaction would have a positive effect on its 2008 earnings per share. Shares in Nestle were 2.1% higher at 522.00 Swiss francs by 1332 GMT.
The deal will streamline Nestle, which has long described its stake in Alcon—which makes medical devices and medicines for eye care as well as contact lens care products—as financial and said it “clearly has financial punch” for acquisitions with the Alcon proceeds. “We consider Nestle’s move as a positive step in its transformation into a ‘health, wellness and nutrition’ company,” said Vontobel analyst Claudia Lenz. “Moreover, the reduction in net debt gives Nestle scope for further share buyback programs.”
Novartis said it currently had no plans for another major acquisition, but did not exclude making smaller buys. “The best way we believe to look at the transaction is further diversification of growth through a bolt-on acquisition ahead of the US patent expiry of (topseller) Diovan in 2012,” said Deutsche Bank analyst Michael Leuchten.
COMPLEMENTARY:Alcon, the world’s largest eye care company with sales of $5.6 billion, will complement Novartis’s own contact lens unit Ciba Vision. Novartis has total contact lens and eye medicine revenue of $2.5 billion.
Novartis said it would finance the purchase of the first stake in Alcon from its cash reserves and external shortterm financing. It would finance the possible purchase of the second stake from cash and further borrowing.
The sale of the Alcon stake, proceeds from which would be used to reduce debt, comes just before Nestle’s annual shareholder meeting. A Nestle spokesman said he did not foresee a decision on selling a stake in L’Oreal SA before 2009. Outgoing chief executive Peter Brabeck, who led a string of acquisitions to expand Nestle’s health focus, is due to hand over the reins to new CEO Paul Bulcke.
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