Novartis Eyes an Opportunity in Alcon

Includes: ACL, NVS
by: The Burrill Report

Novartis (NYSE:NVS) is pursuing plans to acquire the eye-care business Alcon (NYSE:ACL) from Nestle (OTCPK:NSRGY) in a controversial near-$50 billion deal that could help it capture a substantial share of the global eye-care market. The Swiss drug maker, which already owns a quarter of Alcon, sees a chance to expand its ophthalmology franchise thus gaining a new revenue stream as patent-protection for some of its best-sellers nears expiration. But Alcon's minority shareholders are angry because Novartis is offering them just $153 per share while paying Nestle $180 per share for its 52 percent stake.

For Novartis, acquiring Alcon offers an opportunity to capture a third of the $26 billion global eye-care market. Novartis has already established beachheads in that market with its Ciba Vision contact lens unit and Lucentis, its drug for age-related macular degeneration, a leading cause of vision loss in Americans 60 and older.

At Alcon, surgical products for treating ailments like glaucoma and cataracts represented 46 percent of the company's $6.3 billion total annual sales. Its pharmaceutical business, targeting eye allergies and infections among other afflictions, represents another 41 percent of sales. Consumer vision care products round out its offerings.

The proposed merger is contingent upon, among other things, approval by Alcon's board, a successful exercising of Novartis' option to buy Nestle's share of Alcon, as well as receipt of required regulatory approvals.

For now, Alcon's trio of independent directors stands as the biggest barrier to the deal. The independents, appointed to Alcon's board when Novartis bought its original stake, represent minority stakeholder interests and are attempting to secure a better deal for them. But Swiss law gives Novartis the upper hand, allowing it to set the offer price for minority shareholders directly once it gains majority ownership of the company by exercising its option to buy Nestle's shares.

For its part, the independent board members say they're "disappointed that Novartis is attempting to circumvent protections and corporate governance best practices" intended to protect those shareholders.