Medical Device Daily Senior

Inevitability is the word that comes to mind this week, particularly for those who follow the ophthalmology industry, as Novartis (Basel, Switzerland) and Alcon (Huenenberg, Switzerland) have finally agreed on a price for the remaining 23% of Alcon shares that Novartis did not already own.

Novartis has agreed to pay $168 a share for the remaining Alcon shares. The merger consideration will be comprised of a combination of Novartis shares and, if necessary, a cash contingent value amount to result in a total value of $168 a share. The deal is valued at $12.9 billion.

“Inevitable is a good word for it,“ said Larry Haimovitch, president of Haimovitch Medical Technology Consultants (Mill Valley, California) and a regular contributor to Medical Device Daily, who follows this space closely. “It was just really a matter of time. It was very clear that Novartis, at some point, was going to have to . . . come up with a deal that worked for everybody.“

This is the third main stage of the buyout for Novartis. The company bought $10.4 billion worth of Alcon shares from Nestlé (Veve, Switzerland) for $143 a piece in 2008; then it paid Nestlé $28.1 billion, or $180 a share, in August. The average share price of the two transactions was $168, the same deal it is now offering minority shareholders.

“That's all the minority shareholders really hoped to get . . . the same number they paid Nestlé,“ Haimovitch told MDD, later adding “they fought for what was fair and they won.“

Novartis reported its plans to buy Alcon in January at a fixed exchange rate of 2.8 Novartis shares for each Alcon share which had a value of about $142. The independent director committee (IDC) of Alcon's board shot down that proposal based on inadequate value (Medical Device Daily, Jan. 21, 2010). Then in August it first bought Nestlé's 77% share in the company (MDD, Aug. 27, 2010).

Because of the lesser price being offered to the minority shareholders, the IDC called the original proposal “grossly inadequate“ and “fundamentally flawed.“

Tom Plaskett, chairman of Alcon's IDC, told media and investors during a January conference call that the committee had also found “the tactics Novartis has deployed are offensive and demonstrate a profound disrespect for Alcon's minority shareholders.“

The merger is expected to be completed during the first half of 2011. Cravath, Swaine & Moore and Homburger were legal advisers for Alcon, while Sullivan & Cromwell and Pestalozzi, Zurich represented the IDC.

“This agreement is the culmination of a lengthy and robust series of negotiations with Novartis that resulted in a fair value for all stakeholders,“ Plaskett said Wednesday in a statement. “We strongly believe this agreement is in the best interest of Alcon and its shareholders and we are delighted to recommend this negotiated transaction to the Alcon board of directors.“

While expressing happiness for Alcon, Haimovitch admitted the deal was sad on a personal level as he watches yet another ophthalmology company get swooped up by a larger company.

“I've said it before and I'll say it again, Novartis is buying a very, very, good company. It's a very well run and very strong company,“ Haimovitch said.

Alcon will become the second largest division within Novartis.

“This merger will create a stronger eye care business with broader commercial reach and enhanced capabilities to develop more new and innovative eye care products that address unmet clinical needs in eye care,“ said Kevin Buehler, Alcon's president/CEO. “The combination of Alcon's deep understanding of the eye care specialty and the broad expertise and scale of Novartis will allow us to address virtually all key areas of eye care with quality products and will position the Alcon business for faster growth.“

According to Novartis, the merger of the two organizations is expected to yield a number of benefits to the company and its customers, including: increased commercial capability to accelerate sales growth and customer support; expanded ability to develop eye care products that reach the market faster; greater patient and market access to advanced technologies; enhanced product development and branding opportunities in contact lenses and solutions; and cost efficiencies that can be reinvested in research and other growth opportunities.

“Alcon is a great strategic fit for Novartis, as a science-based leader in a high growth segment of healthcare. The growth synergies are significant, as Alcon will be the development engine for our best in class research organization in eye care and will leverage the Novartis market access capabilities outside the United States,“ said Novartis CEO Joseph Jimenez. “I am very pleased that we were able to come to this agreement and will be able to provide Alcon employees the full benefits of being part of the Novartis group.“

In other dealmaking activity, Milestone Venture Partners, an early stage venture capital firm with a specialty in digital healthcare investments, reported that its portfolio company, MedPage Today (New York), was acquired by Everyday Health. Financial terms of the transaction were not disclosed.

Amanda Pedersen, 309-351-7774;