Novartis to Wrap Up Alcon Buy - Analyst Blog

Alcon Inc. (ACL">ACL) recently announced that its board of directors has given the nod for its merger with Novartis AG (NVS">NVS). Novartis plans to pay $168 per share to acquire the remaining 23% share of Alcon it does not already own. Per the terms of the agreement, the merger consideration will consist of Novartis shares and, if necessary, a cash contingent value amount, resulting in a total value of $168 per share.

Alcon's board approved the merger following a favorable recommendation from the Independent Director Committee and a fairness opinion issued by Lazard Ltd. (LAZ">LAZ), among other things.

Following the completion of the merger, which is expected in the first half of 2011, Alcon will become the second largest division within Novartis. Moreover, CIBA Vision, an Alcon business wing, and select eye care medicines will be integrated into Alcon, forming an organization, which will contribute more than $8.7 billion in sales (over 70%) to the eye care segment.

The acquisition of Alcon will help Novartis diversify and make up for the revenues lost to generic competition. Moreover, it will help the company bolster its position in the eye care market, which presents significant growth potential due to the unmet needs of an ageing population.

Novartis had first announced its intention to gain full ownership of Alcon in early January. At that time Novartis had a 25% stake in Alcon. In April, Novartis acquired 156 million shares of Alcon from Swiss corporation Nestlé S.A. for $28.3 billion, raising its stake in Alcon to 77%. Novartis' outlay for acquiring the entire 77% stake in Alcon was about $38.7 billion.

Neutral on Novartis

Currently, we have a Neutral recommendation on Novartis, which is supported by a Zacks #3 Rank (short-term Hold rating). We are pleased with Novartis' wide range of products and its efforts to diversify further as is evident from its upcoming merger with Alcon.

However, we prefer to remain on the sidelines due to the upcoming patent cliff for the company as a number of Novartis drugs will face generic competition between 2011 and 2015.

 
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