Novartis AG has wrapped up its long-awaited buyout of the remainder of U.S.-listed Alcon Inc
it didn't own for $12.9 billion, after sweetening its original offer with a cash element.
The Swiss drugmaker has been trying to clinch 100 percent ownership in Alcon since the start of the year, but its original all-paper offer of 2.8 Novartis shares for each Alcon share met stiff resistance from Alcon's Independent Director Committee (IDC), which repeatedly dismissed it as grossly inadequate.
Novartis also said it was restarting a 10 billion Swiss franc ($10.3 billion) share buyback program, suspended in April 2008, to minimize dilution to Novartis shareholders.
The announcement ... removes uncertainty around this transaction which has weighed heavily on the Novartis share price in recent months. This together with the re-activation of the share buyback program should support the Novartis share price, Helvea analyst Karl-Heinz Koch said.
The merger consideration will now include up to 2.8 Novartis shares and, if necessary, be topped up with cash to ensure that each Alcon shareholder gets $168 per Alcon share, Novartis said on Wednesday.
The group added that if the value of 2.8 Novartis shares is more than $168, the number of Novartis shares will be reduced accordingly.
At 0935 GMT, Novartis shares were trading 5.4 percent higher at 56.45 Swiss francs, outpacing a 1.5 percent rise in the STOXX Europe 600 Healthcare index. This values the Novartis bid for the minority stake at around $164 per Alcon share.
Alcon shares closed at $162.43 in U.S. trading.
Novartis's move completes the final stage of a lengthy process to get full control of the eyecare group, known for its contact lens solutions, and the dominant player in the multibillion-dollar market of intraocular lenses, small lenses implanted in the eye to correct problems focusing.
The group is also No. 1 in cataracts -- an area that is set to benefit from aging populations.
The overhang of the Alcon acquisition has been the key restraint on the Novartis share price in 2010, said Deutsche Bank analyst Tim Race. With improved visibility now available and the share buyback soaking up the dilution, we expect Novartis shares to outperform.
Novartis' decision to restart its share buyback is part of a growing trend among European drug firms to return cash.
AstraZeneca and Novo Nordisk both have active buyback programs, and GlaxoSmithKline's CEO told Reuters on Monday his group was also likely to restart share repurchases..
GLOBAL EYECARE LEADER
With this step Novartis takes full ownership, becoming the global leader in eyecare, a rapidly expanding, innovative platform based on the growing needs of an aging population, Novartis Chairman Daniel Vasella said in a statement.
The Basel-based group is hoping the Alcon deal, worth some $52 billion in total, will help it diversify and protect it against patent loss on big selling medicines such as blood pressure drug Diovan.
Novartis earlier this year completed its buy of a 77 percent stake from Nestle and paid the Swiss foods group on average $168 per Alcon share.
The drugmaker refused to budge from its offer made to the remaining Alcon shareholders, which throughout the year this was worth less than the average price paid to Nestle.
Novartis argued it would be able to push the deal through under Swiss merger law, but Alcon's IDC still threatened to fight Novartis in the courtrooms to get a better price for the minority shareholders.
Both Novartis and Alcon boards of directors unanimously approved the merger and Novartis said it was likely to be completed during the first half of 2011.
It is, however, conditional on clearance of a registration statement by the U.S. Securities and Exchange Commission, two-thirds approval by the shareholders of each of Novartis and Alcon voting at their respective meetings, and other customary closing conditions.
Current Alcon Chief Executive Kevin Buehler will run the new Alcon division and the move bolsters Novartis' fifth pillar as it forges ahead with its strategy of diversification, which it is banking on to boost profitability.
The new eyecare division, which will cover 70 percent of the global vision care sector, will include Novartis' CIBA Vision and Alcon's opthalmic medicines. Pro forma sales for this unit would have reached $8.7 billion in 2009, Novartis said.
Novartis said the annual cost synergies after gaining full ownership were expected to be $300 million and said the merger was likely to be around 3 percent dilutive to core earnings per share based on Novartis' current share price and assuming the merger closes by April 1.
($1=.9677 Swiss Franc)
(Additional reporting by Ben Hirschler in London; Editing by Hans Peters)