Replies to post #78971 on Biotech Values

[DewDiligence]

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.

Whoever asked Nestlé to comment on this is retarded. If NVS has not already exercised its call option @$181/sh (which now seems unlikely), the probability that Nestlé will exercise its put option is 100.00%.

NVS is preparing for the Nestlé put to be exercised as early as Jan 2010:
http://www.reuters.com/article/rbssHealthcareNews/idUSB17590520090602

[alertmeipp]

It's good to know Novartis prefer small deals...

[DewDiligence]

ACL (NVS) – This acquisition of ESBATech AG, a private company,
is “trendy” in two ways: i) it includes a large contingency payment,
a feature of several recent biotech buyouts; and ii) the target
company’s forte is antibody fragments, a hot research area.
ESBATech’s non-ophthalmology programs will be spun off into a
separate company and are not part of ACL’s purchase. (Inasmuch
as ACL will soon be majority-owned by NVS, the ESBATech deal is
effectively an acquisition by NVS.)

http://finance.yahoo.com/news/Alcon-to-Acquire-Swiss-bw-3607786020.html?x=0&.v=1

›Alcon to Acquire Swiss Biotechnology Firm, ESBATech AG

• Company gains access to proprietary antibody fragment technology particularly suited to treat eye diseases

• Acquisition establishes sustainable platform for ongoing biologics development

• Deal builds on other recent transactions to expand breadth and depth of Alcon’s development opportunities in eye care in the long term

• ESBATech shareholders retain rights to non-ophthalmic technology and products

Sunday September 13, 2009, 6:01 pm EDT

HUENENBERG, Switzerland & ZURICH--(BUSINESS WIRE)--Alcon (NYSE: ACL) announced today that it has entered into a definitive agreement to acquire ESBATech AG, a Swiss biotechnology company. Alcon will pay ESBATech shareholders $150 million in cash at closing, plus contingent payments of up to $439 million based upon the achievement of future research and development milestones that would be expected to create value for Alcon. ESBATech is a clinical-stage biotechnology company that has been developing a pipeline of proprietary single-chain antibody fragment therapeutics for topical and local delivery for safe and convenient therapy.

“Biotechnology offers significant growth opportunities in ophthalmology because it has the potential to deliver therapies with superior efficacy and safety relative to existing approaches,” said Sabri Markabi, M.D., Alcon’s senior vice president of research and development and chief medical officer. “Combining ESBATech’s proprietary antibody fragment technology with our expertise in ophthalmic formulation and capabilities in global development will strengthen Alcon’s leadership position in ophthalmology.”

ESBATech has advanced its antibody fragment technology to preclinical and clinical stages in the eye for various diseases. The company has several stable and soluble single-chain antibody fragments in development, with its most advanced product candidate progressed into Phase I and II studies relating to the treatment of inflammatory ocular diseases.

“I am very proud of what our team has achieved in proving clinically that our platform delivers therapeutic antibody fragments with required drug-like properties,” said Dr. Dominik Escher, chief executive officer of ESBATech. “All of us at ESBATech are excited to join with Alcon to advance this technology further and to develop products to treat serious eye diseases so that more patients can see better.”

The agreement to acquire ESBATech includes all rights to its technology for therapeutic application to the eye, including age-related macular degeneration, diabetic macular edema, glaucoma, dry eye and uveitis. Substantially all of the employees of ESBATech will join Alcon upon the finalization of the acquisition. The rights to the technology and products for application outside of ophthalmology will be retained by the previous shareholders of ESBATech and spun off into a separate new company, Delenex Therapeutics AG.

“This acquisition is part of our ongoing strategy to enhance access to multiple sources of technologies and compounds that bolster our total research platform in support of innovative products to treat eye disease,” said Kevin Buehler, Alcon’s president and chief executive officer. “We welcome Dr. Escher and his highly qualified team of biotechnology experts who will become the foundation of Alcon’s biologics capability in the future.”

As confirmation of the strategy to enhance the Alcon research platform, this biologics capability acquisition comes on the heels of Alcon’s recent announcement of an agreement with AstraZeneca that pairs Alcon’s ophthalmic research capability with AstraZeneca’s rich drug libraries in a collaborative effort to treat eye diseases. The ESBATech acquisition expands Alcon’s research capability outside of small molecules to the promising field of proteins, antibodies and other large molecules.

About Alcon

Alcon, Inc. is the world’s leading eye care company, with sales of approximately $6.3 billion in 2008. Alcon, which has been dedicated to the ophthalmic industry for 65 years, researches, develops, manufactures and markets pharmaceuticals, surgical equipment and devices, contacts lens solutions and other vision care products that treat diseases, disorders and other conditions of the eye. Alcon operates in 75 countries and sells products in 180 markets. Alcon’s majority shareholder is Nestlé, S.A., the world’s largest food company. For more information on Alcon, Inc., visit the Company’s web site at www.alcon.com.

About ESBATech

ESBATech is a Zurich, Switzerland-based, privately held, clinical stage biotechnology company concentrating in research and development of its antibody fragments for therapeutic applications. ESBATech applies its proprietary screening platform IMMUNA and its fully human single-chain antibody frameworks to generate product candidates against targets of clinical relevance. Prior to the acquisition, the company focused on three franchises: ophthalmology, rheumatology and respiratory, advancing a pipeline of novel antibody fragments for topical and/or local delivery, to ensure safe and convenient patient therapy. For more information about ESBATech, please visit the company’s web site at www.esbatech.com.‹

[DewDiligence]

NVS Exercises Alcon Option; Offers to Buy Minority Shareholders

[NVS’ decision to exercise its $28B call option on ACL at $180/sh* in cash is simply a matter of facing reality. Nestlé had an option to put its remaining ACL stake to NVS at a 20.5% premium to ACL’s market price (capped at $181/sh); hence, for NVS to have gained from not exercising, ACL’s share price would have had to fall from its current level of $164.35 to about $150 before Nestlé moved to exercise its put. Clearly, Nestlé would not have allowed this to happen.

The real news in this PR, therefore, is not NVS’ exercise of its call option on Nestlé’s ACL stake, but rather is NVS’ offer to buy out ACL’s minority shareholders, who collectively own a 23% stake, for $11B in NVS stock, which will cause a 4.7% expansion in NVS’ diluted shares outstanding. This buyout of ACL’s minority shareholders makes sense, IMO, because it enables significant cost reductions ($300M/yr according to this PR) that would have been precluded by continuing to run ACL as an independent company. NVS expects that buying ACL will dilute 2010 GAAP EPS by 9%, but much of this EPS dilution stems from accounting artifacts.

NVS has ample liquidity to handle the $28B cash portion of this two-part deal, although NVS’ net debt will obviously increase. According to this PR, NVS expects its credit rating to remain unchanged; this makes sense insofar as the cash portion of the deal (the option exercise) was widely expected and was already reflected in NVS’ credit rating.

The buyout of ACL’s minority shareholders requires the approval of 2/3 of ACL’s shareholders and 2/3 of NVS’ shareholders. The approval of ACL’s shareholders is a fait accompli inasmuch as NVS will own 77% of ACL prior to the ACL shareholder vote and is allowed to vote its own shares in favor of the deal. CC today at 8am ET.

Background: ACL is the world’s largest ophthalmology company with about $6B in annual sales. Nestlé acquired ACL in 1978 and ran it as a wholly owned subsidiary until ACL’s IPO in 2002. NVS acquired 25% of ACL from Nestlé for $11B in cash in Apr 2008, at which time the companies agreed to the unusual call and put options (#msg-28256175). All told, NVS’ acquisition of ACL in three stages will end up costing NVS approximately $50B in cash and stock, making this one of the biggest pharma mergers of all time. For additional info on ACL’s business, please see http://www.novartis.com/downloads/investors/presentations-events/other-events/2010/20100104-alcon-backgrounder.pdf .]

http://www.novartis.com/investors/presentations-events/2010/2010-01-04_alcon-acquisition.shtml

›Novartis to acquire majority control of Alcon, a global leader in eye care, and proposes merger for full ownership

Basel, January 4, 2010 — Novartis intends to gain full ownership of Alcon Inc. (NYSE: ACL) by first completing the April 2008 agreement with Nestlé S.A. to acquire a 77% majority stake in a global leader in eye care and subsequently entering into an all-share direct merger with Alcon for the remaining 23% minority stake.

Novartis believes this merger, which will be implemented under the Swiss Merger Act, is in the interest of all stakeholders and will provide the needed clarity on Alcon’s future.

Alcon will strengthen the Group’s portfolio focused on healthcare and provide greater access to the fast-growing global eye care sector, which is driven by an aging population, innovation and emerging markets.

“The addition of Alcon will strategically strengthen our healthcare portfolio and our position in eye care, a sector with dynamic growth due to the increasing patient needs of an aging population,” said Dr. Daniel Vasella, Chairman and CEO of Novartis. “This is the right time to simplify Alcon’s ownership to eliminate uncertainties for employees and shareholders. It will also allow us to strengthen innovation power by combining R&D efforts and grow our global market presence thanks to our complementary product portfolios.”

Alcon and Novartis have complementary eye care businesses

Alcon and Novartis have attractive global activities in eye care, each offering their own competitive positions in highly complementary segments that together cover more than 70% of the global vision care sector. Aligning these strengths can result in offering even more compelling products that make a difference for patients around the world.

Alcon, which is incorporated in Switzerland and has US operations based in Fort Worth, Texas, has developed leading positions in its three business sectors through a consistent focus on eye care since its creation in 1945:

Surgical (2008 sales: USD 2.9 billion)

Alcon is the global leader in cataract and vitreoretinal surgery, offering a portfolio of medical devices and ophthalmic surgery products. In 2008, more than 60% of micro-incision cataract surgeries – where the eye’s lens is broken up, removed and replaced by an artificial intraocular lens (IOLs) – were performed with Alcon equipment. Alcon is also the global leader in IOLs based on the AcrySof® family, which exceeded USD 1 billion of sales in 2008.

Pharmaceuticals (2008 sales: USD 2.6 billion)

Alcon has a portfolio of specialty medicines for various eye diseases, including glaucoma and conditions in the front of the eye such as infections and allergies. Strong growth has come from new product introductions and global expansion, particularly in Japan, where three new medicines have been launched since 2006.

Consumer (2008 sales: USD 0.8 billion)

Alcon provides a portfolio of contact lens care products, OTC (over-the-counter) dry eye drops and ocular vitamins, with emerging markets a key growth driver.

Novartis has long-standing activities in contact lenses, a sector in which Alcon is not active, and a complementary ophthalmic pharmaceuticals portfolio:

CIBA Vision (2008 net sales: USD 1.7 billion)

A global leader that generated 85% of its 2008 annual sales from contact lenses, CIBA Vision has been growing in 2009 thanks to new product launches in the Air Optix family of monthly silicone hydrogel lenses and the Dailies range of disposable lenses. CIBA Vision also offers a range of lens care products.

Selected ophthalmic pharmaceuticals (2008 net sales: USD 0.5 billion)

Novartis provides a range of complementary medicines used to treat a number of eye diseases not addressed by Alcon’s portfolio. In addition to its product portfolio, Novartis has an extensive R&D pipeline with projects targeting novel ways to treat various forms of eye-related diseases. Lucentis (2008 net sales: USD 0.9 billion), a therapy for “wet” age-related macular degeneration that is a leading cause of blindness in people over age 55, will not be transferred to the new eye care division, but instead co-promoted, an approach that has already proven to be effective in Japan.

Following successful completion of the merger, Alcon would be established as a new Novartis division that incorporates these highly complementary assets. This new eye care division will have enhanced opportunities to accelerate expansion in high-growth regions, generate greater value from combined product portfolios and capitalize on strengthened R&D capabilities.

Alcon majority ownership transfer from Nestlé

Novartis and Nestlé entered into an agreement in April 2008 for the smooth transition of Nestlé’s 77% majority stake in Alcon to Novartis.

In 2008, Novartis acquired a 25% stake in Alcon for USD 10.4 billion, or USD 143 per share, financed from internal cash reserves and external short-term financing.

On January 4, 2010, Novartis and Nestlé initiated completion of the 2008 agreement, whereby Novartis is exercising its call option to acquire Nestlé’s remaining 52% Alcon stake for USD 28.1 billion, or USD 180 per share.* This acquisition, which is subject to required regulatory approvals, is expected to be completed in the second half of 2010. This purchase will be funded from available liquidity and external debt financing.

Together, these transactions are estimated to cost approximately USD 38.5 billion, and at an average cost of USD 168 per share, which reflects a 17% premium over USD 143.18, which was agreed by Novartis and Nestlé to be Alcon’s market price in April 2008.

With a 77% Alcon majority stake, Novartis believes approximately USD 200 million of annual pre-tax cost synergies could be generated within three years after closing through shared service agreements, collaborations, joint ventures and other business arrangements. [This is in addition to the expected $100M saving in overhead expenses described below.]

Merger proposal offers benefits to all stakeholders

The Novartis Board of Directors believes it is in the best interest of all stakeholders – the shareholders of Alcon and Novartis, their employees and the patients who benefit from their products – to simplify Alcon’s ownership structure by making a proposal to acquire the remaining 23% held by minority shareholders.

Alcon will be an important contributor to Novartis, with its associates constituting the major part of a new eye care division that will benefit from access to the Group’s global operations, expertise and resources. Attaining 100% ownership will also avoid speculation about the minority stake and enable the companies to move faster to achieve the full potential of the combined businesses.

To attain full ownership, a direct merger of Alcon into Novartis AG is proposed under the Swiss Merger Act. Novartis offers a fixed exchange ratio of 2.80 Novartis shares for each remaining Alcon share. Alcon’s shareholders will have the choice of receiving Novartis American Depositary Shares (ADSs) as merger consideration.

Based on the Novartis closing share price of CHF 56.50 on December 30, 2009 (the last trading day before this announcement) and an exchange rate of CHF 1.04 = USD 1.00, this proposal represents an implied price of USD 153 per Alcon share and a 12% premium to Alcon’s unaffected publicly-traded share price [i.e. a 12% premium relative to ACL’s share price prior to the Apr 2008 transaction].

In arriving at this proposal, Novartis considered a number of factors, including: assessment of the fundamental value of Alcon; the unaffected Alcon share price as adjusted for speculation regarding the intentions of Novartis; the total per-share price of acquiring Nestlé’s 77% majority stake and the governance rights afforded under Swiss law; lower earnings expectations for Alcon since April 2008; incremental cost synergies provided by the merger; appropriately comparable premiums typically applied to unaffected share prices for acquiring a minority stake; and the economic interests of Novartis shareholders.

Completion of the merger is expected to provide additional annual pre-tax cost synergies of approximately USD 100 million within three years after closing, driven mainly by elimination of public company expenses and consolidation of duplicate functions and processes. [This is in addition to the $200M annual saving described earlier in this PR.] The strong growth outlook in eye care is anticipated to compensate for integration-related workforce reductions, which would be implemented in a socially responsible manner.

The merger will be conditional on the closing of the 52% stake acquisition from Nestlé and would require approval by the Boards of Directors of Novartis and Alcon. The merger would also require two-thirds approval by the shareholders of Novartis and Alcon voting at their respective meetings. This proposal does not include a due diligence condition. Under Swiss law, Novartis has the right to vote its Alcon stake in favor of the proposed merger [i.e. the vote by ACL shareholders is a fait accompli].

Financial impact of proposed transactions to Novartis

Costs for full acquisition of Alcon, including the initial 25% stake purchased in mid-2008, are estimated at USD 49.7 billion.

The transaction to acquire Nestlé’s remaining 52% majority stake for USD 28.1 billion is planned to be funded with available cash resources and up to USD 16 billion of external short- and long-term debt funding.

For the merger, Novartis will ask its shareholders to approve the issuance of 98 million new shares, which together with 107 million shares already held in treasury will be used to finance the acquisition of the Alcon minority shares at an implied cost of USD 11.2 billion. As of November 30, 2009, Novartis had 2,285 million fully diluted shares outstanding.

The Board of Directors has decided to use equity as a consideration to Alcon’s minority shareholders to enable Novartis to maintain its strong credit rating, preserving its firm financial foundation and providing flexibility for future growth.

In the first year after closing, these transactions to increase the Group’s stake in Alcon from 25% to 100% are expected to be approximately 9% dilutive to fully diluted earnings per share, but approximately 1% accretive to core earnings per share.

The transactions are not expected to have an effect on the Group’s credit ratings. Moody’s rates the Group as Aa2 for long-term maturities and P-1 for short-term maturities and Standard & Poor’s has a rating of AA- and A-1+, for long-term and short-term maturities, respectively. Fitch has a long-term rating of AA and a short-term rating of F1+. These agencies have maintained a “stable” outlook.

Note to investors

Novartis has scheduled a conference call with members of the financial community to discuss this announcement on Monday, January 4, at 14:00 Central European Time. A simultaneous live webcast, as well as additional information on this transaction including a copy of the Novartis letter to the Alcon Board of Directors, may be accessed by visiting the Novartis website at www.novartis.com.

* Under terms of April 2008 agreement with Nestlé, the call option exercise price is USD 181 per share for approx. 152 million shares and USD 143.18 for approx. 4 million shares, resulting in an average price of USD 180 per share for the approx. 156 million shares comprising the 52% Alcon stake.‹

[DewDiligence]

NVS Exercises Alcon Option; Offers to Buy Minority Shareholders

[(Reposted to correct error in original version.) NVS’ decision to exercise its $28B call option on ACL at $180/sh* in cash is simply a matter of facing reality. Nestlé had an option to put its remaining ACL stake to NVS at a 20.5% premium to ACL’s market price (capped at $181/sh); hence, for NVS to have gained from not exercising, ACL’s share price would have had to fall from its current level of $164.35 to about $150 before Nestlé moved to exercise its put. Clearly, Nestlé would not have allowed this to happen.

The real news in this PR, therefore, is not NVS’ exercise of its call option on Nestlé’s ACL stake, but rather is NVS’ offer to buy out ACL’s minority shareholders, who collectively own a 23% stake, for $11B in NVS stock, which will cause a 9% expansion in NVS’ diluted shares outstanding. This buyout of ACL’s minority shareholders makes sense, IMO, because it enables significant cost reductions ($300M/yr according to this PR) that would have been precluded by continuing to run ACL as an independent company. NVS expects that buying ACL will dilute 2010 GAAP EPS by 9% (coincidentally the same as the % increase in shares outstanding), but much of this EPS dilution stems from accounting artifacts.

ACL’s minority shareholders are getting no premium whatsoever relative to the current share price because they have absolutely zero leverage. The buyout of ACL’s minority shareholders requires the approval of 2/3 of ACL’s shareholders and 2/3 of NVS’ shareholders. The approval of ACL’s shareholders is a fait accompli inasmuch as NVS will own 77% of ACL prior to the ACL shareholder vote and is allowed to vote its own shares in favor of the deal.

NVS has ample liquidity to handle the $28B cash portion of this deal, although NVS’ net debt will obviously increase. According to this PR, NVS expects its credit rating to remain unchanged; this makes sense insofar as the cash portion of the deal (the option exercise) was widely expected and was already reflected in NVS’ credit rating.

Background: ACL is the world’s largest ophthalmology company with about $6B in annual sales. Nestlé acquired ACL in 1978 and ran it as a wholly owned subsidiary until ACL’s IPO in 2002. NVS acquired 25% of ACL from Nestlé for $11B in cash in Apr 2008, at which time the companies agreed to the unusual call and put options (#msg-28256175). All told, NVS’ acquisition of ACL in three stages will end up costing NVS approximately $50B in cash and stock, making this one of the biggest pharma mergers of all time. For additional info on ACL’s business, please see http://www.novartis.com/downloads/investors/presentations-events/other-events/2010/20100104-alcon-backgrounder.pdf .]

http://www.novartis.com/investors/presentations-events/2010/2010-01-04_alcon-acquisition.shtml

›Novartis to acquire majority control of Alcon, a global leader in eye care, and proposes merger for full ownership

Basel, January 4, 2010 — Novartis intends to gain full ownership of Alcon Inc. (NYSE: ACL) by first completing the April 2008 agreement with Nestlé S.A. to acquire a 77% majority stake in a global leader in eye care and subsequently entering into an all-share direct merger with Alcon for the remaining 23% minority stake.

Novartis believes this merger, which will be implemented under the Swiss Merger Act, is in the interest of all stakeholders and will provide the needed clarity on Alcon’s future.

Alcon will strengthen the Group’s portfolio focused on healthcare and provide greater access to the fast-growing global eye care sector, which is driven by an aging population, innovation and emerging markets.

“The addition of Alcon will strategically strengthen our healthcare portfolio and our position in eye care, a sector with dynamic growth due to the increasing patient needs of an aging population,” said Dr. Daniel Vasella, Chairman and CEO of Novartis. “This is the right time to simplify Alcon’s ownership to eliminate uncertainties for employees and shareholders. It will also allow us to strengthen innovation power by combining R&D efforts and grow our global market presence thanks to our complementary product portfolios.”

Alcon and Novartis have complementary eye care businesses

Alcon and Novartis have attractive global activities in eye care, each offering their own competitive positions in highly complementary segments that together cover more than 70% of the global vision care sector. Aligning these strengths can result in offering even more compelling products that make a difference for patients around the world.

Alcon, which is incorporated in Switzerland and has US operations based in Fort Worth, Texas, has developed leading positions in its three business sectors through a consistent focus on eye care since its creation in 1945:

Surgical (2008 sales: USD 2.9 billion)

Alcon is the global leader in cataract and vitreoretinal surgery, offering a portfolio of medical devices and ophthalmic surgery products. In 2008, more than 60% of micro-incision cataract surgeries – where the eye’s lens is broken up, removed and replaced by an artificial intraocular lens (IOLs) – were performed with Alcon equipment. Alcon is also the global leader in IOLs based on the AcrySof® family, which exceeded USD 1 billion of sales in 2008.

Pharmaceuticals (2008 sales: USD 2.6 billion)

Alcon has a portfolio of specialty medicines for various eye diseases, including glaucoma and conditions in the front of the eye such as infections and allergies. Strong growth has come from new product introductions and global expansion, particularly in Japan, where three new medicines have been launched since 2006.

Consumer (2008 sales: USD 0.8 billion)

Alcon provides a portfolio of contact lens care products, OTC (over-the-counter) dry eye drops and ocular vitamins, with emerging markets a key growth driver.

Novartis has long-standing activities in contact lenses, a sector in which Alcon is not active, and a complementary ophthalmic pharmaceuticals portfolio:

CIBA Vision (2008 net sales: USD 1.7 billion)

A global leader that generated 85% of its 2008 annual sales from contact lenses, CIBA Vision has been growing in 2009 thanks to new product launches in the Air Optix family of monthly silicone hydrogel lenses and the Dailies range of disposable lenses. CIBA Vision also offers a range of lens care products.

Selected ophthalmic pharmaceuticals (2008 net sales: USD 0.5 billion)

Novartis provides a range of complementary medicines used to treat a number of eye diseases not addressed by Alcon’s portfolio. In addition to its product portfolio, Novartis has an extensive R&D pipeline with projects targeting novel ways to treat various forms of eye-related diseases. Lucentis (2008 net sales: USD 0.9 billion), a therapy for “wet” age-related macular degeneration that is a leading cause of blindness in people over age 55, will not be transferred to the new eye care division, but instead co-promoted, an approach that has already proven to be effective in Japan.

Following successful completion of the merger, Alcon would be established as a new Novartis division that incorporates these highly complementary assets. This new eye care division will have enhanced opportunities to accelerate expansion in high-growth regions, generate greater value from combined product portfolios and capitalize on strengthened R&D capabilities.

Alcon majority ownership transfer from Nestlé

Novartis and Nestlé entered into an agreement in April 2008 for the smooth transition of Nestlé’s 77% majority stake in Alcon to Novartis.

In 2008, Novartis acquired a 25% stake in Alcon for USD 10.4 billion, or USD 143 per share, financed from internal cash reserves and external short-term financing.

On January 4, 2010, Novartis and Nestlé initiated completion of the 2008 agreement, whereby Novartis is exercising its call option to acquire Nestlé’s remaining 52% Alcon stake for USD 28.1 billion, or USD 180 per share.* This acquisition, which is subject to required regulatory approvals, is expected to be completed in the second half of 2010. This purchase will be funded from available liquidity and external debt financing.

Together, these transactions are estimated to cost approximately USD 38.5 billion, and at an average cost of USD 168 per share, which reflects a 17% premium over USD 143.18, which was agreed by Novartis and Nestlé to be Alcon’s market price in April 2008.

With a 77% Alcon majority stake, Novartis believes approximately USD 200 million of annual pre-tax cost synergies could be generated within three years after closing through shared service agreements, collaborations, joint ventures and other business arrangements. [This is in addition to the expected $100M saving in overhead expenses described below.]

Merger proposal offers benefits to all stakeholders

The Novartis Board of Directors believes it is in the best interest of all stakeholders – the shareholders of Alcon and Novartis, their employees and the patients who benefit from their products – to simplify Alcon’s ownership structure by making a proposal to acquire the remaining 23% held by minority shareholders.

Alcon will be an important contributor to Novartis, with its associates constituting the major part of a new eye care division that will benefit from access to the Group’s global operations, expertise and resources. Attaining 100% ownership will also avoid speculation about the minority stake and enable the companies to move faster to achieve the full potential of the combined businesses.

To attain full ownership, a direct merger of Alcon into Novartis AG is proposed under the Swiss Merger Act. Novartis offers a fixed exchange ratio of 2.80 Novartis shares for each remaining Alcon share. Alcon’s shareholders will have the choice of receiving Novartis American Depositary Shares (ADSs) as merger consideration.

Based on the Novartis closing share price of CHF 56.50 on December 30, 2009 (the last trading day before this announcement) and an exchange rate of CHF 1.04 = USD 1.00, this proposal represents an implied price of USD 153 per Alcon share and a 12% premium to Alcon’s unaffected publicly-traded share price. [NVS defines ACL’s “unaffected” share price as $137/sh; however, a more sensible baseline price of ACL (IMO) is the $140.35 closing price on 4/4/08, the last trading day before the announcement of the first stage of NVS’ acquisition from Nestlé. Using this basis, the premium for the minority shareholders, specifically, is 9% and the overall premium for the entire three-stage deal is 17% ($164/$140.35).]

In arriving at this proposal, Novartis considered a number of factors, including: assessment of the fundamental value of Alcon; the unaffected Alcon share price as adjusted for speculation regarding the intentions of Novartis; the total per-share price of acquiring Nestlé’s 77% majority stake and the governance rights afforded under Swiss law; lower earnings expectations for Alcon since April 2008; incremental cost synergies provided by the merger; appropriately comparable premiums typically applied to unaffected share prices for acquiring a minority stake; and the economic interests of Novartis shareholders.

Completion of the merger is expected to provide additional annual pre-tax cost synergies of approximately USD 100 million within three years after closing, driven mainly by elimination of public company expenses and consolidation of duplicate functions and processes. [This is in addition to the $200M annual saving described earlier in this PR.] The strong growth outlook in eye care is anticipated to compensate for integration-related workforce reductions, which would be implemented in a socially responsible manner.

The merger will be conditional on the closing of the 52% stake acquisition from Nestlé and would require approval by the Boards of Directors of Novartis and Alcon. The merger would also require two-thirds approval by the shareholders of Novartis and Alcon voting at their respective meetings. This proposal does not include a due diligence condition. Under Swiss law, Novartis has the right to vote its Alcon stake in favor of the proposed merger [i.e. the vote by ACL shareholders is a fait accompli].

Financial impact of proposed transactions to Novartis

Costs for full acquisition of Alcon, including the initial 25% stake purchased in mid-2008, are estimated at USD 49.7 billion [i.e. this is one of the largest pharma mergers of all time].

The transaction to acquire Nestlé’s remaining 52% majority stake for USD 28.1 billion is planned to be funded with available cash resources and up to USD 16 billion of external short- and long-term debt funding.

For the merger, Novartis will ask its shareholders to approve the issuance of 98 million new shares, which together with 107 million shares already held in treasury [i.e. 205M NVS shares will be issued to ACL’s minority shareholders, a 9% expansion in NVS’ diluted shares outstanding] will be used to finance the acquisition of the Alcon minority shares at an implied cost of USD 11.2 billion. As of November 30, 2009, Novartis had 2,285 million fully diluted shares outstanding.

The Board of Directors has decided to use equity as a consideration to Alcon’s minority shareholders to enable Novartis to maintain its strong credit rating, preserving its firm financial foundation and providing flexibility for future growth.

In the first year after closing, these transactions to increase the Group’s stake in Alcon from 25% to 100% are expected to be approximately 9% dilutive to fully diluted earnings per share [coincidentally the same % as the expansion in NVS’ shares outstanding], but approximately 1% accretive to core earnings per share.

The transactions are not expected to have an effect on the Group’s credit ratings. Moody’s rates the Group as Aa2 for long-term maturities and P-1 for short-term maturities and Standard & Poor’s has a rating of AA- and A-1+, for long-term and short-term maturities, respectively. Fitch has a long-term rating of AA and a short-term rating of F1+. These agencies have maintained a “stable” outlook.

Note to investors

Novartis has scheduled a conference call with members of the financial community to discuss this announcement on Monday, January 4, at 14:00 Central European Time. A simultaneous live webcast, as well as additional information on this transaction including a copy of the Novartis letter to the Alcon Board of Directors, may be accessed by visiting the Novartis website at www.novartis.com.

* Under terms of April 2008 agreement with Nestlé, the call option exercise price is USD 181 per share for approx. 152 million shares and USD 143.18 for approx. 4 million shares, resulting in an average price of USD 180 per share for the approx. 156 million shares comprising the 52% Alcon stake.‹

[DewDiligence]

WPI challenges US patents on NVS/Alcon’s Pataday, the once-daily formulation of Patanol:

http://finance.yahoo.com/news/Watson-Confirms-Pataday-prnews-16748352.html?x=0&.v=1

Pataday has annual US sales of about $225M.