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Novartis exercises call option, offers to buy Alcon shares

BLOOMBERG

Novartis AG offered to buy the rest of Alcon Inc, the world’s largest eye-care company, from Nestle SA and shareholders for a total of US$39.3 billion, as chief executive Daniel Vasella expands into products for eye surgery.

Nestle will sell a 52 percent stake to the Basel, Switzerland-based drug maker for US$180 a share, Novartis said yesterday in a statement. Novartis offered to pay 2.8 of its own shares for each remaining Alcon share held by the public. Novartis is exercising a call option the Swiss companies agreed to in April 2008. Nestle today announced an additional share buyback worth 10 billion Swiss francs (US$9.65 billion).

By buying all of Alcon, the maker of Opti-Free contact lens cleaners, Novartis expands a portfolio of eye-care businesses including Ciba Vision and the Lucentis blindness drug, Dieter Buchholz of Falcon Private Bank said.

Alcon had an operating profit margin of 35 percent in 2008 compared with Novartis’ 22 percent.

“Alcon would round off the portfolio and the deal makes sense,” said Buchholz, who manages US$12 billion and owns shares of Nestle and Novartis, before the transaction was announced.

Nestle, the maker of Nescafe coffee, will have multiplied the value of its investment in Alcon by more than 100 times over 33 years. The company, based in Vevey, Switzerland, spent US$280 million to buy Alcon in 1977, spokeswoman Nina Backes said.

Nestle aimed to offset its risk in developing markets by expanding in the US as inflation boosted food costs, a statement on Nestle’s Web site said.

Nestle sold 23 percent of Alcon in a 2002 initial public offering for US$2.2 billion. Novartis is offering to buy out those shares, which trade on the New York Stock Exchange, for about US$11.2 billion, or US$153 a share. Nestle divested a 25 percent stake to Novartis in July 2008 for US$10.4 billion, at which time the companies concluded the option agreement on the remaining shares.

Alcon fell US$1.65, or 1 percent, to close on Dec. 31 at US$164.35 on the New York Stock Exchange. Novartis, which had US$14.2 billion of cash as of Sept. 30, probably will borrow the rest of the money it needs to buy Nestle’s stake, said Marie Fischer-Sabatie, who follows the company for Moody’s Investors Service in Paris.

Alcon’s roots trace back to a pharmacy Robert Alexander and William Conner opened in Fort Worth, Texas, in 1945. The name is a combination of the first parts of each of their last names.

The company, now based in Hunenberg, Switzerland, got 46 percent of revenue in 2008 from devices and products used in eye surgery. Its products include Opti-Free contact-lens disinfectants, treatments for eye infections and glaucoma, and machines used in cataract operations.

Novartis’ Atlanta-based Ciba Vision unit makes contact lenses and lens-care products. The company also sells the Lucentis drug to treat macular degeneration, the leading cause of blindness in people over the age of 50.

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