Righting the wrong

Novartis/Alcon: Maybe Novartis should have trusted the markets more. News that the Swiss drug maker has sweetened its offer to the minority holders of Alcon, the US eye-care group, sent Novartis shares up eight per cent on December 15. They're now at the level that could allow Novartis to avoid putting more cash into its just-sweetened offer. Nevertheless, the independent directors of Alcon have something to show for their spirited fight. The main question is why it took almost a year to reach the sensible compromise the two sides should have agreed much earlier.

Under the new deal, Novartis will pay minority shareholders 2.8 of its own shares for each Alcon share. That’s the same as it offered in January. But this time the Swiss company is also guaranteeing that Alcon investors will receive the equivalent of $168 a share. If necessary, it will make up the difference in cash. That means Alcon's minority shareholders are guaranteed the same value as the average price Novartis paid Nestle - in cash - for its 77 per cent stake in the business.

In January, the all-share offer valued Alcon at around $153 a share, which suggests that the latest sweetener is worth more than $1 billion. But if its share price holds up, Novartis won't have to part with any cash. Indeed, if the value of 2.8 Novartis shares is above $168 on completion, the exchange ratio will be reduced accordingly.

Novartis shareholders have other reasons to rejoice about the deal that ends this drawn-out takeover battle. To minimise dilution, Novartis will re-start a share buy-back programme it suspended in 2008. Meanwhile, the company says full takeover of Alcon would add $100 million of annual synergies to its original, $200 million estimate.

The company's initial treatment of Alcon's minorities looked arrogant - especially as a number of those shareholders were Alcon executives and employees who could have been turned off by their new parent's apparent stinginess. Now the wrong has been righted, and Novartis may not even feel the bite.