Novartis sets sights on Nestle's Alcon

Novartis AG agreed to buy a 25 percent stake in Nestle SA's Alcon Inc for $11 billion and said it may acquire the rest to become the world's biggest maker of eye-care products.

Novartis, Switzerland's second-largest pharmaceuticals company, will pay $143.18 a share for Vevey, Switzerland-based Nestle's 25 percent holding, and has an option to buy a further 52 percent from the food company for $28 billion.

Alcon, based in Hunenberg, Switzerland, rose 2.5 percent to $148.44 in New York Stock Exchange composite trading on April 4.

Buying Alcon would add $5.6 billion in sales and gives Novartis the Opti-Free contact lens treatment, the Travatan glaucoma medicine and the Infiniti line of cataract surgery products.

The drugmaker needs new sources of revenue to as generic competition eats into sales of its best-selling medicines. Nestle will use the funds to cut debt.

"Blue-chip pharmas have a lot of money and are desperate for new growth opportunities," said Denise Anderson, an analyst at Landsbanki Kepler in Zurich. "It's not cheap."

Novartis, which has lost 16 percent this year, gained 25 centimes, or 0.5 percent, to 52.65 Swiss francs as of 9:01 am in Zurich trading. Nestle rose 14.5 francs, or 2.8 percent, to 526 francs.

Balancing risks

The purchase comes on top of the $13 billion Novartis spent on acquisitions including generic-drug makers Hexal AG and Eon Labs Inc in 2005 and the $5.7 billion acquisition of vaccine maker Chiron Corp in 2006.

"This acquisition furthers our strategy of accessing high-growth segments of the healthcare market while balancing inherent risks," Novartis Chief Executive Daniel Vasella said in the statement.

"The strategic fit of Alcon and Novartis is excellent. Eye care will continue to grow dynamically as there is a growing unmet medical need driven primarily by the world's aging population."

Nestle had repeatedly said since August it no longer considered Alcon stake as a strategic investment.

"Alcon is strong enough to stand on its own," Nestle Chairman Peter Brabeck said on Feb 21. "Alcon doesn't need Nestle any more, and Nestle doesn't need any more Alcon."

Nestle bought Alcon in 1977 as it sought to expand in the United States to offset investments in other markets it considered to be riskier, according to the Swiss company's website.

Alcon was Nestle's second acquisition outside the food industry.

The first was the purchase of a stake in L'Oreal SA, the world's largest cosmetics maker, in 1974.

L'Oreal rose as much as 4.6 percent in Paris trading on speculation Nestle may plan to eventually bid for the rest of the company. Francois-Xavier Perroud, a spokesman for Nestle, declined to comment.

Novartis may acquire the 52 percent stake in Alcon at a fixed price of $181 a share between January 2010 and July 2011. Nestle can also require Novartis to purchase the stake.

Nestle can't raise its stake in L'Oreal before the death of the Paris-based company's largest shareholder, Liliane Bettencourt, according to a shareholder agreement with her.

Bettencourt is 85 years old. Nestle also cannot change its stake in L'Oreal until next year, according to the terms of the agreement.

Agencies

(China Daily 04/08/2008 page16)