Novartis to Buy Nestle’s Alcon Stake for $28.1 Billion

Novartis to Buy Nestle’s Alcon Stake for $28.1 Billion

Jan. 4 (Bloomberg) -- Novartis AG said it will buy a 52 percent stake in Alcon Inc., the world’s largest eye-care company, from Nestle SA for $28.1 billion as Chief Executive Officer Daniel Vasella expands into products for eye surgery.

Nestle will sell the stake to the Basel, Switzerland-based drugmaker for $180 a share, Novartis said today in a Hugin statement. Novartis is exercising a call option the Swiss companies agreed to in April 2008. Nestle also announced an additional share buyback worth 10 billion Swiss francs ($9.65 billion).

By raising its stake in Alcon, the maker of Opti-Free contact lens cleaners, to 77 percent, Novartis expands a portfolio of eye-care businesses including Ciba Vision and the Lucentis blindness drug, said Dieter Buchholz of Falcon Private Bank. Alcon had an operating profit margin of 35 percent in 2008 compared with Novartis’s 22 percent.

“Alcon would round off the portfolio and the deal makes sense,” said Buchholz, who manages $12 billion and owns shares of Nestle and Novartis, before the transaction was announced.

Nestle, the maker of Nescafe coffee, will have multiplied the value of its investment in Alcon by more than 100 times over 33 years. The company, based in Vevey, Switzerland, spent $280 million to buy Alcon in 1977, spokeswoman Nina Backes said. Nestle aimed to offset its risk in developing markets by expanding in the U.S. as inflation boosted food costs, according to Nestle’s Web site.

Nestle sold 23 percent of Alcon in a 2002 initial public offering for $2.2 billion. Those shares still trade on the New York Stock Exchange. Nestle divested a 25 percent stake to Novartis in July 2008 for $10.4 billion, at which time the companies concluded the option agreement on the remaining shares.

‘Better Deal’

“It is the better deal for Nestle because they bought cheaply and are selling at a good price,” Buchholz said.

Alcon fell $1.65, or 1 percent, to close Dec. 31 at $164.35 on the NYSE. Novartis has “no concrete plan” to make an offer to buy the publicly traded shares, Eric Althoff, a company spokesman, said Dec. 28. UBS AG said in a report to clients last month that it expected Novartis to bid for the remaining shares so it could reap the full cost savings from the acquisition.

Chief Executive Officer Paul Bulcke increased Nestle’s annual acquisition budget 50 percent to as much as 3 billion francs on Oct. 22.

Novartis, which had $14.2 billion of cash as of Sept. 30, probably will borrow the rest of the money it needs to buy Nestle’s stake, according to Marie Fischer-Sabatie, who follows the company for Moody’s Investors Service in Paris.

Alcon’s roots trace back to a pharmacy Robert Alexander and William Conner opened in Fort Worth, Texas, in 1945. The name is a combination of the first parts of each of their last names. The company, now based in Hunenberg, Switzerland, got 46 percent of revenue in 2008 from devices and products used in eye surgery. Its products include Opti-Free contact-lens disinfectants, treatments for eye infections and glaucoma, and machines used in cataract operations.

Novartis’s Atlanta-based Ciba Vision unit makes contact lenses and lens-care products. The company also sells the Lucentis drug to treat macular degeneration, the leading cause of blindness in people over the age of 50.

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