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| Eyes on the prize |
| Alexander Smith / Jan 06, 2010, 00:41 IST |
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Alcon/Novartis: Novartis has offered Alcon’s minority shareholders a low-ball $153 per share for their 23 per cent of the eye care firm. But the Swiss drugmaker is paying Nestle $180 per share for the food group's controlling 52 per cent stake in the business. The minorities may not have much clout. Still, they should demand a better price.
Novartis Chief Executive Daniel Vasella says he's confident that Alcon’s minorities will accept his offer of 2.8 Novartis shares per Alcon share. The pitch represents a 12 per cent premium to what Novartis reckons is Alcon’s undisturbed share price. But with Alcon stock last trading at $164, the market had clearly expected more generous terms.
Alcon’s independent directors are showing welcome signs of life, pointing out that the real gap to focus on is the 15 per cent discount to the all-cash offer Novartis has made for Nestle’s holding. True, Novartis bought its first chunk of Alcon from Nestle in 2008 for less. But even taking the average price Novartis has paid the Swiss food group — $168 per Alcon share — this is still well above the offer now on the table to minorities.
Of course, Alcon's minorities were in a weaker position than Nestle, being unable to hand Novartis control on a plate. But this two-tier deal goes against the principle that all shareholders should be treated equally. At least the minorities aren’t completely without leverage.
Novartis will not want a long and distracting battle with a group of disgruntled shareholders. It admits that it will be able to get 50 per cent more synergies from the deal with full ownership. The stated synergies may even be conservative.
The snag is that Novartis has limited wriggle room. Paying Alcon shareholders the same as Nestle, and in cash, would cost $12.2 billion. That would hamper Novartis's AA credit rating, although it could add more stock into the mix.
Alcon’s independent directors should be the first line of defence for minority shareholders.
The early response from them looks promising. With some juicy synergies to be had, Novartis has its eye on the prize at Alcon. Minorities should push Novartis to pay for it.
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