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Novartis Chief May Waive Chance to Buy Alcon After Share Slump

http://www.bloomberg.com/apps/news?pid=20601202&sid=aF3SYV_NKC8w&refer=healthcare

By Eva von Schaper

June 3 (Bloomberg) -- Novartis AG may pass on a chance to buy a majority stake in eye-care company Alcon Inc. for $28.2 billion after Alcon shares slumped, Chief Executive Officer Daniel Vasella said.

Novartis last year acquired 25 percent of Alcon from Nestle SA for $143.18 a share, or $11 billion. Under the agreement, Novartis can purchase another 52 percent between January 2010 and July 2011 for $181 a share. Alcon has fallen 25 percent since Nestle and Novartis announced the deal on April 7, 2008, closing yesterday on the New York Stock Exchange at $111.45.

Buying Alcon would help Basel, Switzerland-based Novartis reduce its reliance on pharmaceuticals at a time when its biggest-selling drugs, the hypertension treatment Diovan and the cancer drug Gleevec, are set to lose patent protection. Still, completing the purchase would require the drugmaker to pay a 62 percent premium over Alcon’s current price.

“You can calculate the likelihood of that happening,” Vasella, said in a May 28 interview in his Basel office. “From the point of the fundamentals, of the fit of the business, of the strategy, all that has not changed, but you cannot look at that in isolation. It is in a context of financial terms. I hope that it can be done, but obviously there are also significant uncertainties.”

Novartis may still end up buying the Alcon stake. Nestle can require Novartis to buy the shares at a 20.5 percent premium to Alcon’s stock price when the option is exercised, up to a maximum of $181. A Nestle spokeswoman declined to comment on whether it plans to exercise that option. The remaining 23 percent of Alcon, the world’s largest eye-care products company, is publicly traded.

Vasella, 55, also said that two personnel moves in the past seven months -- elevating Joerg Reinhardt to chief operating officer and hiring Jonathan Symonds as chief financial officer - - will give the board options in planning for Vasella’s successor.

Alcon’s Stock

Alcon, based in Hunenberg, Switzerland, makes Opti-Free contact-lens disinfectants, treatments for eye infections and glaucoma, and machines used in cataract surgery.

In past years, Novartis reduced its dependence on prescription medicines by developing generic drugs and expanding its vaccine unit by acquiring Chiron Corp. Vasella repeated that he’s looking for acquisitions to aid growth.

“If we can acquire now at a decent price then we should,” he said. Acquisitions “could be biotechs, could be generics could be vaccines. If we can make the case that it adds value more than cash, we would do it.”

Last month, Novartis agreed to buy Ebewe Pharma’s injectable-drug unit for $1.2 billion in cash to gain generic copies of cancer treatments, including chemotherapy. In February, it said it will pay Portola Pharmaceuticals Inc. as much as $575 million for the global rights to a blood thinner that could challenge Bristol-Myers Squibb Co.’s and Sanofi- Aventis SA’s Plavix.

Smaller Deals

Novartis, along with GlaxoSmithKline Plc and AstraZeneca Plc in the U.K. and France’s Sanofi, has said it prefers smaller deals to megamergers. This year, Pfizer Inc. agreed to acquire Wyeth for $63.6 billion, Merck & Co. said it will pay about $46 billion for Schering-Plough Corp. and Roche Holding AG purchased the rest of Genentech Inc. for $46.8 billion.

“The question is: why do you consider big transactions, and I think the worst reason is because it is fashion,” the Novartis chief executive said.

In October, Vasella shook up top management, replacing the heads of three of four business units. He moved Reinhardt from head of the vaccines unit into the new position of chief operating officer, sharing leadership duties with Vasella. Last month, the company hired Symonds, a former AstraZeneca executive-turned investment banker.

While Vasella declined to say how long he planned to stay in his job, he said succession played a role in both moves.

“Succession planning is not an option, it’s a must,” Vasella said. “You don’t want to be in front of a situation where you have one choice. One choice is no choice.”