Alcon: Novartis offer 'inadequate'

Fort Worth, TX-Alcon Laboratories' Independent Director Committee is calling Novartis' merger proposal "grossly inadequate," and it is vowing to fight Novartis in its efforts to take control.

In a public statement Jan. 20 followed by a conference call with investment analysts, Thomas G. Plaskett, chairman of the committee, said Novartis' Jan. 4 announcement that it would seek 100% ownership of Alcon-with or without the approval of the minority shareholders-is "offensive."

"We . . . find the coercive tactics deployed by Novartis offensive, and believe that they demonstrate a profound disrespect for Alcon's minority shareholders, many of whom are employees that built Alcon into the highly successful company that it is today," Plaskett told the analysts. "We are greatly disappointed with Novartis' public implication that they can essentially force Alcon's minority shareholders to accept the terms of the proposal."

Novartis Chief Executive Officer (CEO) Daniel Vasella, MD, said the company would then seek to purchase the remaining publicly traded shares for 2.8 Novartis shares in exchange for each Alcon share-then valued at about $153 but which had declined to $151.45 as of Jan. 19.

Dr. Vasella said in a conference call with investment analysts that Novartis could push through the sale of the remaining 23% by taking control of the board after it achieves the 77% ownership and ensuring a majority approval.

The statement, seen as a strong-arm tactic, was met with disapproval by members of the committee, which includes Plaskett; health-care executive Lodewijk J.R. de Vink; and Joan W. Miller, MD, chief of ophthalmology, Massachusetts Eye & Ear Infirmary, and chairwoman of the department of ophthalmology, Harvard Medical School, Boston. The committee hired investment banking firm Greenhill & Co. to analyze the offer and said the result proves the fundamental value of Alcon "significantly exceeds the price that Novartis has offered."

In a letter to Dr. Vasella released with the committee's press release, Plaskett said Greenhill's analysis determined the "unaffected share price" should be close to the $164.35 closing price of Alcon as of Dec. 31, 2009-not $137, as Novartis had proposed. He also maintained that Novartis understated achievable synergies in the transaction, and argued that the 12% premium that Novartis said it would offer minority shareholders over the "unaffected share price" was too low.

Plaskett pointed to a review of about 250 "squeeze-out transactions" over the past decade and said the premium paid for the minority shares in those deals was about 27% to 30% over the share price one week and one month prior to the announcement.

"Indeed, Novartis itself set a precedent in 2005 when it paid a premium of [about] 25% to the unaffected share price to squeeze-out the minority shareholders of Eon Labs, which also represented a premium of 9% to the price paid for the majority stake," he said in the letter.

In the conference call, Plaskett declined to say what price the committee is seeking.

With net earnings growing 23.8% over the past five years, a 35.2% operating income margin, and a 32.5% net earnings margin, according to President and CEO Kevin J. Buehler's presentation Jan. 12 at the J.P. Morgan Healthcare Conference, Alcon has demonstrated its ability to produce profits.

"We have a unique position to be able to translate products into market share into profits," Buehler told analysts attending the conference.