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Novartis to buy stake in Nestle’s Alcon

Novartis AG agreed to buy a 25 percent stake in Nestle SA’s Alcon Inc for US$11 billion and said it may acquire the rest to become the world’s biggest maker of eyecare products.

Novartis, Switzerland’s second-largest pharmaceuticals company, will pay US$143.18 a share for Vevey, Switzerland-based Nestle’s 25 percent holding, and has an option to buy a further 52 percent from the food company for US$28 billion.

Alcon, based in Hunenberg, Switzerland, rose 2.5 percent to US$148.44 in New York Stock Exchange composite trading on Friday.

Buying Alcon would add US$5.6 billion in sales and gives Novartis the Opti-Free contact lens treatment, the Travatan glaucoma medicine and the Infiniti line of cataract surgery products.

The drugmaker needs new sources of revenue as generic competition eats into sales of its best-selling medicines. Nestle will use the funds to cut debt.

“Blue-chip pharmas have a lot of money and are desperate for new growth opportunities,” said Denise Anderson, an analyst at Landsbanki Kepler in Zurich. “It’s not cheap.”

Novartis, which has lost 16 percent this year, gained 0.5 percent, to SF52.65 (US$51.92) as of 9:01am in Zurich trading. Nestle rose SF14.5, or 2.8 percent, to SF526.

The purchase comes on top of the US$13 billion Novartis spent on acquisitions including generic-drug makers Hexal AG and Eon Labs Inc in 2005 and the US$5.7 billion acquisition of vaccine maker Chiron Corp in 2006.

“This acquisition furthers our strategy of accessing high-growth segments of the healthcare market while balancing inherent risks,” Novartis chief executive Daniel Vasella said in the statement.

“The strategic fit of Alcon and Novartis is excellent. Eye care will continue to grow dynamically as there is a growing unmet medical need driven primarily by the world’s aging population,” he said.

Nestle had repeatedly said since August that it no longer considered its Alcon stake as a strategic investment.

“Alcon is strong enough to stand on its own,” Nestle chairman Peter Brabeck said on Feb. 21. “Alcon doesn’t need Nestle any more, and Nestle doesn’t need any more Alcon.”

Nestle bought Alcon in 1977 as it sought to expand in the US to offset investments in other markets it considered to be riskier, the Swiss company’s Web site said. Alcon was Nestle’s second acquisition outside the food industry. The first was the purchase of a stake in L’Oreal SA, the world’s largest cosmetics maker, in 1974.

The food company sold a minority stake in Alcon in an initial public offering in 2002 at US$33 a share. The stock has almost quintupled since that stock sale, and Alcon’s profits have tripled since then.

Novartis may also acquire a 52 percent stake at a fixed price of US$181 a share between January 2010 and July 2011. Nestle can also require Novartis to buy the stake.

Alcon had sales of US$5.6 billion last year, operating income of US$1.9 billion and net income of US$1.6 billion.

The sale should boost this year’s earnings per share, Nestle said in a statement on its Web site. The bottler of Perrier water will use the proceeds to reduce debt and the cash will also “support opportunities for profitable growth in line with the group’s nutrition, health and wellness orientation.” Nestle expects to conclude the sale of the stake “before autumn.”
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