Swiss drug maker Novartis is buying up a 25 per cent stake in Alcon, the world's biggest eye-care company for $11 billion. Full acquisition is on the cards.
Alcon sells a range of pharmaceutical, surgical and consumer eye-care products used to treat diseases, disorders and other conditions of the eye. Novartis said Alcon would make a strong strategic fit with its existing contact lens and ophthalmological drugs business.
The companies said that Novartis, based in Basel, is acquiring an exclusive option to acquire Nestlé's remaining 52 percent stake for about $28 billion, which would bring the total cost of the deal to $39 billion.
"The margins are higher than our pharma business and are obviously very attractive," Novartis's chairman and chief executive, Daniel Vasella, said.
Jérôme Berton, a pharmaceutical sector analyst at Aurel Securities in Paris, called the deal "an acquisition in all but name."
"It's quite a smart move for Novartis," Berton said. "It's quite a lot of money, but Novartis has the resources."
Pharmaceutical companies are eager to find new sources of growth, Berton said, amid competition from generics and pricing pressure from governments and institutional buyers.
The deal "also gives Novartis emerging-market exposure that it lacks currently," he said.
Novartis said it would finance the purchase of the 25 percent Alcon stake with internal cash reserves as well as about $5.5 billion in borrowing.
"This acquisition furthers our strategy of accessing high-growth segments of the health care market while balancing inherent risks," Mr. Vasella said in a statement.
"The strategic fit of Alcon and Novartis is excellent with our complementary product portfolios and R&D synergies. Eye care will continue to grow dynamically as there is a growing unmet medical need driven primarily by the world's aging population."
For its part, Nestlé said Monday that it would use the proceeds of the sale to pay down its 21 billion Swiss francs, or about $21 billion, of debt and continue a share buyback program that calls for it to repurchase about 25 billion francs of its own shares over three years.
The news that Nestlé would have $11 billion for possible acquisitions helped to lift shares of L'Oréal Group, amid speculation that Nestlé may make a play for the cosmetics maker, New York Times reports.
A Nestlé spokesman, François-Xavier Perroud, said Nestlé was "always looking for opportunities to grow in the areas of nutrition, health and wellness, and there are always opportunities that would fit with our strategic goals."
But he said that a deal for L'Oréal was not currently a possibility because Nestlé — the second-largest shareholder in the company after the Bettencourt family — cannot by agreement bid for the company until 2009 at the earliest.