Biotech Values

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Novartis Pays $11 Billion for Stake in Nestle's Alcon

By Eva von Schaper and Thomas Mulier

April 7 (Bloomberg) -- Novartis AG agreed to buy a 25 percent stake in Nestle SA's Alcon Inc. for $11 billion and said it may acquire the rest to become the world's biggest maker of eye-care products.

Novartis, Switzerland's second-largest pharmaceuticals company, will pay $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 $28 billion. Alcon, based in Hunenberg, Switzerland, rose 2.5 percent to $148.44 in New York Stock Exchange composite trading on April 4.

Buying Alcon would add $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 to 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 25 centimes, or 0.5 percent, to 52.65 Swiss francs as of 9:01 a.m. in Zurich trading. Nestle rose 14.5 francs, or 2.8 percent, to 526 francs.

Balancing Risks

The purchase comes on top of the $13 billion Novartis spent on acquisitions including generic-drug makers Hexal AG and Eon Labs Inc. in 2005 and the $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.''

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

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

Nestle expects to conclude the sale of the stake ``before autumn.''