Seeking Alpha
Value
Profile| Send Message|
( followers)  

Novartis (NYSE:NVS) made major headlines yesterday with its announcement to buy Alcon (NYSE:ACL). Novartis already owns a stake in the company and wants to buy out the remaining shareholders with a $39.3 billion bid. The news caught my attention because I am a Novartis shareholder, many gurus own it and the transaction is very large. Below is some information about both companies and guru holdings in the companies.

Novartis AG is committed to improving health and well-being through innovative products and services. The company aspires to capture and hold a leadership position in all of their businesses with a strong, sustainable performance based on continuous innovation. Their long-term success is founded on meeting the expectations of all our stakeholders - their customers, their people, their shareholders and the communities in which they live and work. Novartis Ag has a market cap of $123.62 billion; its shares were traded at around $54.43 with a P/E ratio of 16.3 and P/S ratio of 2.98. The dividend yield of Novartis Ag stocks is 2.67%. Novartis Ag had an annual average earning growth of 8.9% over the past 10 years.

Gurus' Positions

Novartis AG is owned by 8 gurus.

1 Guru Increased Positions in NVS: Tweedy Browne owns 396,951 shares as of 09/30/2009, an increase of 175.47% from the previous quarter. This position accounts for 1.08% of the $1.85 billion portfolio of Tweedy Browne CO LLC.

6 Gurus Kept Positions in NVS Unchanged or Slightly Adjusted: Edward Owens owns 9,519,880 shares as of 09/30/2009, which accounts for 2.63% of the $18.2 billion portfolio of Vanguard Health Care Fund. Jean-Marie Eveillard owns 13,200 shares as of 09/30/2009, which accounts for 0.01% of the $10.76 billion portfolio of Arnhold & S. Bleichroeder Advisers, LLC. Kenneth Fisher owns 287,366 shares as of 09/30/2009, which accounts for 0.05% of the $29.78 billion portfolio of Fisher Asset Management, LLC. PRIMECAP Management owns 37,443,854 shares as of 09/30/2009, which accounts for 3.34% of the $56.46 billion portfolio of PRIMECAP Management. Irving Kahn owns 167,178 shares as of 09/30/2009, which accounts for 1.89% of the $445 million portfolio of Kahn Brothers & Company Inc.. Dodge & Cox owns 65,401,863 shares as of 09/30/2009, which accounts for 4.18% of the $78.78 billion portfolio of Dodge & Cox.

1 Guru Reduced Positions in NVS: John Hussman owns 250,000 shares as of 09/30/2009, a decrease of 50% of from the previous quarter. This position accounts for 0.24% of the $5.36 billion portfolio of Hussman Economtrics Advisors, Inc.

Alcon, Inc. is the world's leading eye care company. Alcon Inc. has a market cap of $49.14 billion; its shares were traded at around $164.35 with a P/E ratio of 24.86 and P/S ratio of 7.81. The dividend yield of Alcon Inc. stocks is 2.22%. Alcon Inc. had an annual average earning growth of 21.2% over the past 5 years.

Alcon Inc. is owned by 1 guru.

1 Guru Reduced Positions in ACL: John Hussman owns 70,000 shares as of 09/30/2009, a decrease of 76.67% from the previous quarter. This position accounts for 0.18% of the $5.36 billion portfolio of Hussman Economtrics Advisors, Inc.

Alcon income statement

PERIOD ENDING 31-Dec-08 31-Dec-07 31-Dec-06
Net Income Applicable To Common Shares $2,046,500 $1,586,400 $1,348,100

Novartis currently holds a large stake in Alcon. It is is paying nearly $40 billion part of that sum to Nestle, and part of it to individual investors to buy out the rest of the company. It seems very expensive to pay $40 billion for part of a company that has only earned on average $1.5 billion during the past three years. The story broke this morning and I will have to investigate further. However, right now, I am skeptical that this deal is in Novartis’s interests.

Novartis has $14 billion of cash, which it will use to finance the transaction in addition to an issuance of approximately $16 billion of short and long-term debt. In addition, it will be issuing shares and diluting shareholders.

Novartis had a strong balance sheet before this transaction. The stock is trading at a P/E of 15.8. The company now is going to issue massive amounts of debt and issue stock, which will destroy their ironclad balance sheet and dilute shareholders simultaneously. I will be watching what the gurus do.

Disclosure: Long NVS for one of my clients, but that could change due to recent events

Source: Novartis to Buy Alcon: Will the Gurus Sell?