Novartis is looking to increase its stake in Alcon as part of an agreement with owner Nestle and then take full control of the eye care specialist, though observers believe it may have to up its offer to minority stakeholders.

The Swiss major is exercising its option to purchase the remaining shares in Alcon owned by Nestle for $180 per share in cash. The agreement covers 156 million shares, worth $28.08 billion, and represents 52% of Alcon’s outstanding shares.

Once the purchase is completed, Novartis would own 77% of Alcon, having bought a 25% stake in its fellow Swiss firm in 2008. The Basel-based giant will then attempt to buy out the 23% holding in Alcon held by minority shareholders who would receive 2.80 Novartis shares for each Alcon share they hold, valued at $153 per share. That transaction would be worth around $11.20 billion.

This latter offer will be reviewed by an independent director committee of the Alcon board, which has already noted that the $153 per share offer represents a 15% discount to price to be paid by Novartis to Nestle. The committee says it will focus on securing “the best attainable value for the minority holders of publicly-held Alcon shares”.

Novartis chief executive Daniel Vasella said the addition of the fellow Swiss firm “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”. He added that “this is the right time to simplify Alcon’s ownership to eliminate uncertainties for employees and shareholders”.

Novartis will fund the transaction from available cash resources and up to $16 billion of external debt financing. It will also ask stockholders to approve the issuance of 98 million new shares to finance the purchase of the Alcon minority shares, together with 107 million shares already held in treasury.
The company added that some $200 million of annual pretax cost synergies could be generated within three years through “shared service agreements, collaborations, joint ventures and other business arrangements”.