<div><p> By Carey Sargent </p><p> [Bloomberg] -- Novartis AG may raise its $10.4 billion bid for the publicly traded stock of Alcon Inc., the world's largest eye-care company, to appease shareholders who are getting less than the Swiss drugmaker agreed to pay Nestle SA (NSRGY) for its stake. </p><p> Novartis (NVS), which owns 25 percent of Alcon (ACL), said yesterday it will buy Nestle's 52 percent stake for $180 a share in cash. The Basel, Switzerland-based drugmaker offered to buy the remaining 23 percent, traded on the New York Stock Exchange, for stock valued at about $149.70 a share based on yesterday's Novartis closing price. </p><p> Alcon's independent directors may try to close that gap. The three board members accused Novartis of attempting to circumvent measures in Swiss law aimed at protecting minority holders. Novartis Chief Executive Officer Daniel Vasella said the law allows Novartis to buy the stock without approval of independent directors once it holds Nestle's stake. The directors and shareholders may challenge Novartis in court, prompting a higher bid, according to Michael Weinstein of JPMorgan Chase & Co. </p><p> "We still view the argument that Novartis should pay the public shareholders, including management, significantly less than it paid Nestle as a difficult one to sell," Weinstein wrote in a note to investors. Novartis is likely to "ultimately raise its offer price," he said. </p><p>Alcon's Drop</p><p> Alcon's independent director committee -- former airline industry executive Thomas Plaskett, Lodewijk de Vink, who runs health-care investments for Blackstone Group LP, and Joan W. Miller, an ophthalmologist at Harvard Medical School -- hired Greenhill & Co. to prepare an opinion on whether the Novartis offer is fair. That should take several weeks and will form the basis for a decision on whether minority shareholders should accept it, according to Weinstein. </p><p> Hunenberg, Switzerland-based Alcon dropped $9.37, or 5.7 percent, to close at $154.98 yesterday in New York. The shares surged 84 percent in 2009, in part on speculation that Novartis would offer to buy the publicly traded stock. Novartis fell 85 centimes, or 1.5 percent, to 54.2 Swiss francs at 11:15 a.m. in Zurich trading. </p><p> Novartis said that by Swiss law, it needs the agreement of the boards of both companies and approval of two-thirds of the shareholders of both companies. </p><p>Board Majority</p><p> "Now, if you think it through, we will have 77 percent of the shares upon closing the Nestle deal, which will also give us the majority on the board," Vasella said yesterday on a call with analysts. "We also will have more than a two-thirds majority on the shares and we can vote in favor of our proposal according to Swiss law and we need to persuade then the Novartis shareholders that it's also fair to them." </p><p> Though Novartis may be able to replace independent directors who don't approve of the bid, doing so may alienate Alcon management, who are "critical to the ongoing success of the franchise," JPMorgan's Weinstein said. The move could also be challenged under Swiss law. </p><p> Under Alcon's regulations, a takeover must be approved by the independent committee, the independent directors committee said. Also, Swiss law requires a takeover to be approved by a majority of independent directors, the committee said. Alcon's other eight board members represent Novartis, Nestle or are Alcon executives. </p><p>'Important Protections'</p><p> "Alcon has established certain important protections for the benefit of Alcon's minority shareholders against a coercive takeover bid, and is disappointed that Novartis is attempting to circumvent those protections and corporate governance best practices," the independent committee said in a statement late yesterday. </p><p> An analysis of similar transactions suggests that Novartis may raise its bid to between $168 and $180, Larry Biegelsen, an analyst at Wells Fargo Advisors LLC, said in a note to investors. </p><p> "Our analysis of prior medtech transactions above $1 billion indicates that Alcon is worth $180 a share," he said. Biegelsen raised his recommendation on Alcon to "outperform" from "market perform" yesterday. </p><p> Novartis said its offer to Alcon's minority shareholders is fair because it represented a 12 percent premium over the "unaffected price" -- meant to strip out an increase in price linked to expectations of a Novartis bid -- of $137. </p><p> "This is very much in line with what minority shareholders in similar transactions have received," Chief Financial Officer Raymund Breu said on the call. </p><p>Bigger Premium</p><p> Nestle also deserves a bigger premium than minority shareholders because that stake gave Novartis control of the company, Vasella said. "Minority shareholders don't give us control," he said. "That explains the difference." </p><p> Acquiring Alcon would expand Novartis's eye-care businesses including Ciba Vision and the Lucentis blindness medicine to help fuel growth as patents on the company's best-selling Diovan and Gleevec treatments start to expire in the U.S. in 2012. </p><p> Alcon obtained 46 percent of revenue from devices and products used in eye surgery in 2008. The company, whose products include treatments for eye infections and glaucoma and machines used in cataract operations, had an operating profit margin of 35 percent in 2008, compared with Novartis's 22 percent. </p><p> Nestle, based in Vevey, Switzerland, sold a 25 percent stake in Alcon to Novartis in 2008 for $10.4 billion. The companies agreed at the time on an option for Novartis to buy Nestle's remaining percent, which Novartis exercised yesterday for $28.1 billion. </p><p> Novartis has spent at least $59 billion on acquisitions over the past five years, according to data compiled by Bloomberg. The Swiss company has purchased Chiron Corp., adding new vaccines, as well as Hexal AG and Eon Labs Inc. to expand in generic medicines. </p><p> To contact the reporter on this story: Carey Sargent in Geneva at csargent3@bloomberg.net. </p><img src="http://admatch-syndication.mochila.com/images/ad.gif?aid=66856057&bid=informcom" /></div><div id="copyright"><div>

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