Novartis set to purchase 77% of Alcon for $39b

Acquiring all of Nestle's shares in Alcon would make Novartis the world's biggest maker of eye-care products, including contact lenses and treatments for glaucoma. (Adam Berry/Bloomberg News)

GENEVA - Novartis AG, the Swiss drug maker facing product delays and generic competition, agreed to buy 77 percent of eye-care company Alcon Inc. in a two-step transaction totaling $39 billion.

Novartis will buy an initial 25 percent stake for $11 billion from Nestle SA, the world's largest food company, which said it will use the money to reduce debt and expand its health-foods unit. Nestle, also in Switzerland, has an option to sell a further 52 percent of Alcon to the drug company for $28 billion.

Acquiring all of Nestle's shares in Alcon would make Novartis the world's biggest maker of eye-care products, including contact lenses and treatments for glaucoma. Novartis would also lessen its reliance on pharmaceuticals as new drugs face delays and sales of the hypertension drug Lotrel and the Lamisil antifungal medication are hurt by cheaper versions.

Basel-based Novartis, Switzerland's second-largest drug company, offered $143.18 for each share of Alcon and also has an option to increase the holding to 77 percent, the companies said. The price is 3.5 percent less than Switzerland-based Alcon's April 4 close.

Credit Suisse Group advised Nestle on the sale. Goldman Sachs Group advised Novartis. The drug maker will use cash reserves and $5.5 billion in loans to finance the purchase. Standard & Poor's cut Novartis's long-term corporate credit rating to AA- from AAA on the "unexpected change in financial policy." Moody's Investors Service cut Novartis to Aa2 from Aaa.

"Novartis always told us they would focus on the pharma business and generics, so it's a bit surprising," said Christian Gattiker, head of equity markets at Bank Julius Baer & Co.

The acquisition "furthers our strategy to strengthen in areas of the market which grow dynamically and which allow us to diversify risk," Novartis chief executive Daniel Vasella said.

The purchase, the biggest in healthcare this year, comes on top of the $13 billion Novartis spent on generic-drug makers Hexal AG and Eon Labs Inc. in 2005 and the $5.7 billion acquisition of vaccine maker Chiron Corp. in 2006.

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