Novartis Obtains Final Shares of Alcon for $12.9 Billion

Shares of Novartis (NVS) soared higher on Wednesday, after the Swiss drug maker finally obtained the remaining outstanding shares of Alcon (ACL) for $12.9 billion. Novartis had been trying to gain 100% control of Alcon since the start of the year to use the company's dominance in eye care to offset revenue losses that may result from expiring patents on some of its top-selling drugs.

Novartis shares traded at $58.87, up $3.04 or 5.45% in midday trading. Shares had been up more than 7% earlier in the day, as investors responded to the news that Novartis had finally reached a deal to acquire Alcon, the No. 1 company in cataract treatment and a major manufacturer of contact lens solutions and intraocular lenses -- small eye lens implants that correct focusing. Shares of Alcon also advanced on the news, trading at $165.28, up $2.85 or 1.7%.

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To seal the deal, Novartis raised its bid for the remaining 23% of Alcon from $153 per share to $168 per share. Perhaps Alcon's independent director committee could have held out for a better price. However, Novartis has already effectively taken control of the company by having its chairman, Daniel Vasella, step into the same role at Alcon and by appointing Robert Karsunky, the former CFO of Novartis's consumer health division, to the CFO post at Alcon. In any case, the market and analysts are showing their approval of the deal.

"The revised offer is considerably higher than what Alcon is worth as a stand-alone entity," said Morningstar equity analyst Debbie Wang in a note to investors. "We think Alcon shareholders are getting a good deal, especially because Novartis shares remain undervalued and hold upside potential."

Morningstar also said that with Novartis announcing Wednesday that it will restart its $10.3 billion share buyback program (which was suspended in April 2008), the Alcon acquisition adds to the value for investors.

"More important, over the long run, we expect the acquisition will give Novartis increased exposure to the quickly growing eye-care business (second only to oncology drug growth over the past five years)," Wang said.