Stephen Rosenman's  Instablog

    Keeping track of dates is important: birthdays, anniversaries, graduations, income tax deadlines.  Miss the date and you're toast; get it right and you're safe. In the stock market, sometimes just remembering one important date is all that it takes to make a lot of money. For instance, one particular stock becomes a great deal more valuable on New Year's 2010. I wrote that date down on April 7, 2008 and it's now time to tell you to check out Alcon, the Swiss eye care company.  
    Remember that Nestle's once owned 77% of Alcon.  Back in April 2008, Novartis agreed to buy 25% of Alcon from Nestle's for $143. Novartis and Nestle's struck a deal to how to dispose of Nestle's remaining 52% of Alcon.  Starting on New Year's Day 2009 until July 31, 2011, invest.alconinc.com/phoenix.zhtml?c=1309...;Novartis has the right to buy those remaining Alcon shares from Nestle's at $181.  On the other hand, Nestle's has the option of selling those shares for $181 a share or for 20.5% above the market price of Alcon covering the preceding week (whichever is less). Right now Alcon trades at $132.  If this was New Year's, Nestle's could force Novartis to buy its shares at about $159.  As the months go by, Novartis must be hoping that shares will not reach $144 or they will be forced to eat the deal at $181, or $28 billion.  It's going to get pretty tense around Novartis come 2010.
  Now that deal doesn't directly have to do with the 23% of shares not owned by Novartis and Nestle's.  However, as we get closer to New Year's, Alcon share price should move ever higher in anticipation of the deal.  In fact, I wouldn't be surprised to see Nestle's in there bidding up Alcon shares or Novartis shorts gobbling up Alcon.
  You should be able to make money three ways:
      1. Simply buy Alcon.  Shares go higher.  
      2. Short Novartis.  Paying up $28 billion might be tough for them. They'll be buying over half of Alcon at a 37% premium.  A $100 billion market cap company swallowing what would be an in total $54 billion Alcon would be a stretch.
      3. Go long Nestle's.  $28 billion buys a lot of chocolate.