Novartis to buy Alcon stake for $39 billion

By Sam Cage

ZURICH (Reuters) - Novartis AG (NOVN.VX: Quote, Profile, Research) has agreed to buy Nestle AG's (NESN.VX: Quote, Profile, Research) 77 percent stake in U.S. company Alcon (ACL.N: Quote, Profile, Research) in a deal worth up to $39 billion to boost its eye care business, the Swiss drugmaker said on Monday.

Novartis will acquire a first, 25 percent stake in Alcon for $11 billion and is set to buy Nestle's remaining 52 percent for a fixed price of $28 billion between January 2010 and July 2011.

"The margins are higher than our pharma business and are obviously very attractive," Novartis Chief Executive Daniel Vasella told reporters.

Novartis is keen to broaden its business from prescription drugs, which face increasing competition from generic medicines and a tougher path to markets, to non-traditional areas like vaccines, eye care and generics.

The price of the first stake is at a 4 percent discount to Alcon's closing price on Friday.

Novartis, Europe's second-largest pharmaceuticals company by market capitalization, would pay a 22 percent premium to Alcon's closing price if it went ahead with the purchase of the second tranche.

Nestle can force through the purchase of the second tranche, but Novartis can opt out if there is a material change in the business, Novartis said.

The acquisition of the first stake values Alcon at 22.8 times expected 2008 earnings and the possible second step at a 2010 multiple of 22.5, according to Novartis.