Focused on growth areas of healthcare, Novartis has reached an agreement with Nestlé S.A. providing the right to acquire majority ownership of Alcon Inc. in two steps and add the world leader in eye care to its diversified portfolio.
The transaction's first step to purchase a 25 per cent stake in Alcon from Nestlé for USD 11 billion is expected to be completed in the second half of 2008. The second step provides rights for Novartis to acquire, and Nestlé to sell, the remaining 52 per cent Alcon stake held by Nestlé between January 2010 and July 2011.
Completion of these steps would make Alcon a majority-owned subsidiary of Novartis and further strengthen its healthcare-focused business portfolio of innovative medicines, high-quality low-cost generics, preventive vaccines, diagnostics and consumer health products, taking advantage of growth opportunities and cost synergies while mitigating risks.
The transition of Alcon's majority ownership to Novartis would also enhance the Group's longer-term growth prospects with greater access to the fast-growing eye care market, a specialty field with unmet patient needs and annual sales of about USD 25 billion in 2007.
Alcon is the world's largest and most profitable eye care company with 2007 annual sales of USD 5.6 billion, operating income of USD 1.9 billion and net income of USD 1.6 billion. Alcon offers a range of pharmaceutical, surgical and consumer eye care products used to treat diseases, disorders and other conditions of the eye.
"This acquisition furthers our strategy of accessing high-growth segments of the healthcare market while balancing inherent risks. The strategic fit of Alcon and Novartis is excellent with our complementary product portfolios and R&D synergies. Eye care will continue to grow dynamically as there is a growing unmet medical need driven primarily by the world's aging population," said Dr. Daniel Vasella, chairman and CEO, Novartis.
Alcon is a high-performing and well-managed global leader in eye care, with competitive leadership positions in all three of its business areas: Surgical (2007 sales: USD 2.5 billion, +13 per cent). Alcon provides medical devices and products for ophthalmic surgery. The principal focus is cataract surgery where cataracts that cloud the eye's lens are broken up, removed and then replaced by an artificial intraocular lens. Other products include devices for vitreoretinal surgery involving conditions such as retinal detachment, macular holes and vitreous haemorrhage, as well as refractive laser surgical devices used primarily for vision correction procedures. The surgical business area offers attractive growth prospects given the rising incidence of eye diseases along with the world's aging population, medical advances and expansion in emerging markets.
Novartis and Nestlé have reached an agreement for a two-step transaction providing a path for the transfer and smooth transition to Novartis of Nestlé's ownership of 77 per cent of Alcon's outstanding shares, which totaled 298.1 million as of April 4, 2008. These transactions will require regulatory approvals.
In the first step, Novartis will acquire a 25 per cent stake in Alcon for about USD 11 billion through the purchase of approximately 74 million shares held by Nestlé. This reflects a per-share price of USD 143.18, which is Alcon's volume-weighted average share price between January 7, 2008, and April 4, 2008. Alcon's closing share price was USD 148.44 on April 4, the last trading day before the signing of this agreement.
In the second step, Novartis has the right to acquire Nestlé's remaining 52 per cent majority stake in Alcon between January 1, 2010, and July 31, 2011, for a fixed price of USD 181 per share, or approximately USD 28 billion. During this period, Nestlé has the right to require Novartis to buy its remaining stake at a 20.5 per cent premium to Alcon's share price at the time of exercise, but not exceeding USD 181 per share. Based on Alcon's closing share price on April 4, 2008, the combined premium would be a maximum of 13 per cent to complete the two steps. Novartis has no obligation to purchase the remaining 23 per cent of shares held by Alcon minority shareholders at any time.
Novartis intends to finance the purchase of the 25 per cent Alcon stake in the first step from internal cash reserves and external short-term financing, with borrowing needs currently estimated at USD 5.5 billion. Financing for the second step would be supported by the Group's ongoing cash generation and further external borrowing.
Following completion of the transaction's first step, Novartis will have a representative on Alcon's Board of Directors. Alcon and Novartis will remain separate and independent companies.
If majority ownership is transferred from Nestlé during the second step, Novartis and Alcon will identify the best way to realize synergies from combining their complementary eye-related businesses.
Potential benefits could include creating a broader portfolio of eye care products, in particular with CIBA Vision's contact lens business and Novartis medicines such as Lucentis for severe eye diseases not addressed by Alcon's portfolio. Other opportunities include R&D activities and an even more aggressive expansion in fast-growing regions, particularly Asia, where Novartis has long-standing operations. In addition, the relationships of Novartis with healthcare payors and strong health economics activities could contribute to Alcon's marketing programmes.
On the other side, Alcon would help limit risks within the Novartis portfolio based on its diversified payer structure with reduced risks of price regulation, leadership in a specialty healthcare area, and greater access to businesses with discretionary consumer spending.