Swiss pharmaceuticals giant Novartis on Monday made a 40-billion-dollar play for the fast growing eye-care market, aiming to take over Alcon, the world's biggest company in a sector driven by an ageing population.
Combined, Alcon and Novartis would have about 70 percent of the global vision care sector, the drug-maker said.
Novartis announced a deal with food giant Nestle last year to buy about a quarter of Alcon for 10.4 billion dollars, with an option to purchase Nestle's remaining 52 percent stake from January 2010.
The cash from the deal is expected to boost Nestle's ability to make takeovers.
On Monday, Novartis said it would acquire the 52 percent stake for 28.1 billion dollars (19.7 billion euros) and that it was offering to pay another 11.2 billion dollars for the remaining Alcon shares held by minority shareholders.
This values the complete purchase of the eye care firm at 49.7 billion dollars.
"Novartis intends to gain full ownership of Alcon Inc. by first completing the April 2008 agreement with Nestle S.A. to acquire a 77 percent majority stake in a global leader in eye care," Novartis said.
It would then enter into an all-share deal with Alcon for the outstanding 23 percent minority stake.
"The addition of Alcon will strategically strengthen our health care portfolio and our position in eye care, a sector with dynamic growth due to the increasing patient needs of an aging population," Novartis chairman and chief executive Daniel Vasella said.
At CM-CIC, analyst Arsene Guekam, said the acquisition was "perfectly appropriate" to the strategy pursued by Novartis.
"The growth of this market is very sustained and the level of (profit) margin comparable to that of the pharmaceutical industry," he said.
Novartis said full ownership of the eye-care firm could generate cost savings, as well as provide "much needed clarity on Alcon's future.
"This is the right time to simplify Alcon's ownership to eliminate uncertainties for employees and shareholders," Vasella said.
"It will also allow us to strengthen innovation power by combining R&D (Research and Development) efforts and grow our global market presence thanks to our complementary product portfolios," he added.
The group acknowledged that it would cut jobs following the acquisition, although it said that the "strong growth outlook in eye care is anticipated to compensate for integration-related workforce reductions.
Minority shareholders of Alcon could however put up some resistance as its independent committee has pointed out that the offer proposed by Novartis was 15 percent less than the 180 dollars a share paid to Nestle.
Vontobel Bank Andrew Weiss said he expected Novartis to improve its offer.
Novartis said it would pay for Nestle's stake with available cash and by borrowing up to 16 billion dollars.
It would also seek shareholder approval to issue 98 million new shares, which would be used together with 107 million shares already held by the company to buy out minority shareholders.
Meanwhile, Nestle, which first acquired Alcon shares in 1977, generates some 40 billion dollars in cash from the sale.
"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," said Paul Bulcke, chief executive of Nestle.
For Aurel bank analyst Jean-Marie Lhome, the deal puts Nestle in a "very comfortable position to make possible acquisitions."
At 3:50 pm (1450 GMT), shares in Nestle were up 1.59 percent at 51 francs while those in Novartis were down 2.21 percent at 55.25 percent.
The overall Swiss Market Index was up 0.83 percent.
Copyright 2010 AFP Global Edition
