Novartis to acquire Nestle stake in eye care major Alcon for $11 billion

07 April 2008

Swiss drug giant Novartis has reached an agreement with global foods leader Nestlé SA to acquire up to 77-per cent of its shareholding in the world's largest eye care company Alcon in a two-stage transaction, subject to regulatory approvals.

In the first step, expected to be completed in the second half of 2008, Novartis will acquire a minority 25-per cent stake in Alcon for about $11 billion for $143.18, which is Alcon's volume-weighted average share price between 7 January 2008, and April 4, 2008. Alcon's closing share price was $148.44 on 4 April, the last trading day before the signing of this agreement.

Nestle and Novartis also announced that the agreement for the second stage of the transaction contains put and call option rights on the remaining Alcon shares owned by Nestle under which Novartis has a call option to buy Nestle's remaining Alcon shares at a fixed price of $181 per share.

Nestle has a put option to sell its remaining Alcon shares to Novartis at the lower of Novartis's call price of $181 per share or at a 20.5 per cent premium above the market price of Alcon shares, which will be calculated as the average price of Alcon shares during the week preceding the exercise date of the put option.

While the second step is optional, both companies would have to agree not to exercise their rights for it to fall through. Based on Alcon's closing share price on 4 April 2008, the combined premium would be a maximum of 13 per cent to complete the two steps.

Novartis says it will 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 $5.5 billion.