Novartis moves forward with acquisition of Alcon for $12.9 billion

Already owning 77 percent of the shares of Alcon, Novartis now goes after the rest after Alcon’s board gives the nod to the deal

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BASEL, Switzerland—Alcon Inc., a leading global leading eye care company with sales of approximately $6.5 billion in 2009, recently announced that its board of directors has given approval for a merger with Novartis AG. Under the current plans Novartis will pay $168 per share to acquire the remaining 23 percent of shares of Alcon it does not already own—with Novartis valuing the transaction at about $12.9 billion.

Joseph Jimenez, CEO of Novartis, has noted that the growth synergies with the deal are significant and cites opportunity in emerging markets and the aging population of the developed world, and annual cost synergies of $300 million are expected with full ownership. Novartis said it expects the deal to close in the first half of next year, pending shareholder approval. On news of the Alcon board's OK of the deal, Novartis, which accounts for 17 percent of the Swiss Market Index, had its biggest stock price surge in more than two years.

After the merger, which is expected in the first half of 2011, Alcon would become the second-largest division within Novartis. Moreover, CIBA Vision, an Alcon business wing, and select eye care medicines will be integrated into Alcon, forming an organization that will contribute more than $8.7 billion in sales to the eye care segment.

The acquisition of Alcon is also expected to help Novartis diversify and make up for the revenues lost to generic competition.

Novartis had first announced its intention to gain full ownership of Alcon in early January. At that time Novartis had a roughly 25 percent stake in Alcon. In April, Novartis acquired 156 million shares of Alcon from Swiss corporation Nestlé S.A. for $28.3 billion, raising its stake in Alcon to 77 percent.

"This merger will create a stronger eye care business with broader commercial reach and enhanced capabilities to develop more new and innovative eye care products that address unmet clinical needs in eye care," says Kevin Buehler, Alcon's president and CEO. "The combination of Alcon's deep understanding of the eye care specialty and the broad expertise and scale of Novartis will allow us to address virtually all key areas of eye care with quality products and will position the Alcon business for faster growth."

The merger will allow Alcon to benefit from Novartis's global commercial capabilities across multiple healthcare product categories, the companies note, and this includes "best-in-class reimbursement and market access capabilities that can be leveraged to accelerate Alcon's growth around the world, such as enhanced market access for advanced technology IOL's in Europe."

The combined company reportedly will be even better positioned to capture growth and market share in all geographic markets, especially in emerging markets where there is high growth potential.

"Alcon is a great strategic fit for Novartis, as a science-based leader in a high growth segment of healthcare. The growth synergies are significant, as Alcon will be the development engine for our best in class research organization in eye care and will leverage the Novartis market access capabilities outside the United States," Jimenez says.

Zacks Investment Research maintains a neutral recommendation on Novartis, though, saying, "We are pleased with Novartis' wide range of products and its efforts to diversify further as is evident from its upcoming merger with Alcon. However, we prefer to remain on the sidelines due to the upcoming patent cliff for the company as a number of Novartis drugs will face generic competition between 2011 and 2015."

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