Novartis Completes Purchase of Alcon Majority Stake from Nestle

More than two years after beginning the acquisition process, Swiss pharmaceutical company Novartis (NVS) said Thursday that it has finally completed the purchase of a 77% majority stake in U.S. eye-care company Alcon (ACL) from food giant Nestlé (NSRGY). It purchased the remaining 52% of Alcon that Nestlé owned, approximately 156 million shares, for $28.3 billion in cash. The companies agreed on the deal on April 6, 2008.

Alcon is the world's largest and most profitable eye care company, Novartis said in a statement, with 2009 annual sales of $6.5 billion and net income of $2 billion. Novartis believes the two companies could generate approximately $200 million of potential annual pre-tax cost synergies.

Novartis, which like most pharmaceutical companies is approaching a patent cliff, when many of its profitable drugs will lose patent protection and face competition from cheap generic versions, is seeking to diversify. It believes the eye care sector offers growth opportunities underpinned by increasing prospects in emerging markets and an aging world population. Novartis said Alcon strategically complements its portfolio: Alcon is a global leader in ophthalmic surgical products, while Novartis has a broad contact lens portfolio and advanced technologies.

The total cost to Novartis for the 77% stake in Alcon was $38.7 billion ($168 per share). In the deal's first phase, Novartis acquired a 25% stake in Alcon from Nestlé for $10.4 billion in July 2008.

On Jan. 4, 2010, Novartis proposed a merger of the two companies under Swiss merger law at a fixed exchange rate of 2.8 Novartis shares for each Alcon share, which would put the current value of Alcon shares at approximately $142 -- much lower than what it paid Nestle. Unsurprisingly, that offer was rejected by Alcon's board as too low. Analysts believe Novartis will increase its offer for the remaining 23% stake.

The five Nestlé-designated members of the Alcon board of directors have tendered their resignations and five Novartis-designated directors were elected to replace them.

Novartis also said it expected the acquisition of the majority stake would be broadly neutral to reported earnings per share in 2010 and 2011, but that core earnings per share would reflect low single-digit and high single-digit accretion in 2010 and 2011 respectively. On a fully synergized basis, earnings per share accretion in 2011 is expected to be in the low double digits.