Date Posted: 04 March 2010
Novartis has proposed a full purchase of Alcon, Inc (ALC:NYSE) for a reported $39.3 billion bringing the total cash price of its Alcon acquisition to just under $50 billion (Novartis had previously bought a 25% stake in the company in April 2008 for $10.4 billion).
The acquisition is being completed by Novartis through the purchase of 52% of Alcon stock for $28 billion in cash from Nestle. Nestle had originally acquired Alcon 33 years ago for a reported $280 million. The remaining equity not held by Novartis at completion of the Nestle transaction (23%) will be acquired through a direct all-share merger of Alcon into Novartis at an offer of 2.8 Novartis shares for each outstanding Alcon share. The deal is being studied by Alcon while market analysts predict there will be unhappy minority shareholders given that the share offer price of $153/share is below that of the market price on the day of the announcement ($164.35/share). The deal is scheduled to close in the second half of 2010.
Novartis is reported to expect compound annual growth of 6% to 7% per annum for the eye care market from 2009 to 2014 which compares favourably with the 5% growth projected for the pharmaceuticals sector. The transaction is seen as a smart move by Novartis to position itself as one of the strongest players in the eye-care market while simultaneously adding protection against projected generic attrition over the coming years. The combined Novartis-Alcon machine is predicted to control over 70% of the eye care market allowing it to potentially grow at a faster clip than the rest of the healthcare market.
Alcon had total sales in 2008 of $6.3 billion of which $2.6 billion was attributable to its ophthalmology pharmaceuticals division while its ophthalmology surgical division accounted for $2.9 billion. In a press statement Novartis said that itself and Alcon "have highly complementary product portfolios covering more tan 70% of the global vision care sector: pharmaceuticals, surgical products, contact lenses and OTC brands". Aside from the growth potential and market dominance the combined entity is expected to bring in considerable savings on the costs side of the house.
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