Zurich: Switzerland`s Novartis plans to get full control of eye care group Alcon for a total $39.3 billion, to diversify away from prescription drugs, after agreeing to acquire a majority stake from Nestle.
Novartis said on Monday it would boost its stake in Alcon to 77 percent, exercising an option to buy an extra 52 percent stake from the world`s largest food group Nestle for $28.1 billion after buying an initial 25 percent stake in 2008.
Novartis also plans to buy out the 23 percent stake in Alcon held by minority shareholders at an additional cost of $11.2 billion, ending uncertainty as to whether or not it would go for full control.
The fixed exchange ratio proposal, however, of 2.80 Novartis shares for each remaining Alcon share is less generous to minorities than the price agreed with Nestle of $180 per share, since it amounts to $153 per share.
Jeffrey Holford, an analyst at stockbroker Jefferies, in London said Novartis would likely end up paying more than $153 to buy out the minorities but wanted to keep the cost as low as possible.
"What we are seeing here is the starting point of a negotiation. It think they`ll end up paying more for it, but they are trying to not pay more than they are paying for the Nestle stake," he said.
Alcon said its independent director committee was reviewing the Novartis offer.
Novartis Chief Executive Daniel Vasella told reporters he was confident that Alcon minority shareholders would accept the offer.
Drugmakers like Novartis, GlaxoSmithKline and Sanofi-Aventis are pushing into areas like consumer healthcare and generics as they face the biggest loss of patent protection in history.
"The addition of Alcon will strategically strengthen our healthcare portfolio and our position in eye care, a sector with dynamic growth due to the increasing patient needs of an aging population," said Vasella.
Novartis said it expected to complete the deal in the second half of the year, funding it from available cash resources and up to $16 billion of external debt financing.
It will also ask its shareholders to approve the issuance of 98 million new shares to finance the purchase of the Alcon minority shares, together with 107 million shares held in treasury.
Novartis said it expects about $200 million of annual pretax cost synergies within three years after closing with the 77 percent stake through shared service agreements, collaborations, joint ventures and other business arrangements.
Nestle said in a separate statement the deal would allow it to launch a new 10 billion Swiss franc ($9.64 billion) share buyback programme for two years once its existing 25 billion programme is completed this year.
Nestle shares were indicated to open 0.2 percent higher, according to data from Clariden Leu .
Analysts say it could also use some of the Alcon proceeds for acquisitions, with the fiercest speculation around whether it might enter the fray for British chocolatier Cadbury and bid against Kraft Foods.
Nestle has always declined to comment on a Cadbury bid although Chief Executive Paul Bulcke said in September the group had no plans for big acquisitions. Analysts say a more likely target could be U.S. babyfood group Mead Johnson Nutrition Co, valued at around $9 billion.
"This divestment of our interest in Alcon will enable our management to concentrate on accelerating the development of Nestle`s position as the world`s leading nutrition, health and wellness company," Bulcke said on Monday.
Novartis had already bought a 25 percent stake in Alcon from Nestle in 2008 in the first part of the deal, which included an option to buy another 52 percent between January 2010 and July 2011.