Alcon's independent directors have criticized a takeover bid from Novartis, saying the Swiss drugmaker is trying to circumvent protections for minority shareholders.
Novartis aims to buy the rest of eye-care group Alcon for $39.3 billion to reduce its reliance on prescription drugs, but is offering minority shareholders a worse deal than 52 percent owner Nestle.
The Basel-based group has the upper hand but Alcon shareholders still hold out hopes that it may improve the offer.
Under Swiss law Novartis can force through the deal once it takes majority control from Nestle as mergers require approval of two thirds of shareholders and a simple board majority.
Novartis has taken the gloves off and claims that since this is not a tender offer minority owners have no option but to approve the deal, since Novartis will soon control Alcon's board, Kepler Capital Markets analyst Tero Weckroth said.
While Alcon, founded in 1945 by two pharmacists in Texas, is listed on the New York Stock Exchange, it is incorporated in Switzerland and is thus bound by law there.
That means Novartis could leverage its 77 percent ownership once it has finished buying the Nestle stake, leaving a legal challenge after a deal closure as the only apparent recourse for Alcon minority shareholders, Morgan Stanley analysts said.
Novartis stock was down 1.5 percent at 54.20 Swiss francs by 1525 GMT on Tuesday, making its offer to minorities of 2.8 Novartis shares for each remaining Alcon share worth $147 per share, well below the $180 it is paying Nestle. The offer had initially been worth $153, based on December 30 prices.
But Alcon shares, which had fallen sharply on Monday, ticked up 0.8 percent to $156.15 in early New York trade, reflecting hopes that Novartis will improve its offer.
JP Morgan analyst Michael Weinstein said he believed Novartis would ultimately raise its offer given the risk of a court challenge and since it was in its interest to keep Alcon's management onside.
We still view the argument that Novartis should pay the public shareholders, including management, significantly less than it paid Nestle as a difficult one to sell, he said in a note.
Larry Biegelsen, an analyst at Wells Fargo Securities, said Novartis might raise its offer to between $168 and $180 a share.
Alcon said on Tuesday its independent director committee believed the company had established certain important protections for its minority shareholders against a coercive takeover bid.
Novartis appears to be attempting to circumvent the minority protection principle ... by claiming that the Alcon minority shareholders are neither accorded minority protections under the Swiss Takeover Code nor the rules under the NYSE, the Alcon directors committee said in a statement.
(Additional reporting by Ben Hirschler in London; editing by Hans Peters and Greg Mahlich)