In the wake of a slow-down in drug sales, Novartis has agreed to acquire fellow Swiss firm Nestle’s 77% stake in the USA’s Alcon, “the world leader in eye care”.

The eye-watering deal is split into two stages and Novartis will acquire a first, 25% stake in Alcon for $11 billion, or $143.18 per share in the second half of the year. The second step will see the Basel-based group buy Nestle's remaining 52% stake for a fixed price of $28 billion, or $181 per share, between January 2010 and July 2011. Nestle has the right to require Novartis to buy this latter stake.

Novartis intends to finance the purchase of the first stake in the from internal cash reserves and external short-term financing, with borrowing needs currently estimated at $5.5 billion. Funding for the second step would be supported by the group's ongoing cash generation and further external borrowing.

Chief executive Daniel Vasella said that the acquisition “furthers our strategy of accessing high-growth segments of the healthcare market while balancing inherent risks”. He added that the strategic fit “is excellent with our complementary product portfolios and R&D synergies”, claiming that “eye care will continue to grow dynamically as there is a growing unmet medical need driven primarily by the world's aging population".

Alcon is highly profitable
Alcon is the world's largest and most profitable eye care company with 2007 annual sales of $5.6 billion, operating income of $1.9 billion and net income of $1.6 billion. It operates through three business units – pharmaceutical, surgical and consumer eye care products – and says that with 14,500 associates in 75 countries, sales are split nearly equally between the USA and the rest of the world. Over the next five years, Alcon plans to invest at least $3.5 billion to expand its pipeline, which includes more than 15 projects in late-stage development.

Novartis and Alcon added that they will identify the best way to realise synergies from combining their complementary eye-related businesses. This could include creating a broader portfolio of eye care products, in particular with CIBA Vision's contact lens business and Novartis medicines, such as its treatment of age-related macular degeneration Lucentis (ranibizumab), for severe eye diseases not addressed by Alcon's portfolio.

Other opportunities include R&D activities “and an even more aggressive expansion in fast-growing regions”, particularly Asia, where Novartis has long-standing operations. In addition, the Swiss firm added that its relationships with healthcare payors and “strong health economics activities could contribute to Alcon's marketing programmes.

Perhaps most interestingly, Alcon would help limit risks within the Novartis portfolio “based on its diversified payor structure with reduced risks of price regulation, leadership in a specialty healthcare area and greater access to businesses with discretionary consumer spending”, the company said. More details of the acquisition will be unveiled at a meeting with financial analysts later today.