Alcon's independent Director Committee calls Novartis proposal 'offensive'

February 1, 2010

Alcon's Independent Director Committee is calling Novartis' merger proposal "grossly inadequate" and is vowing to fight Novartis in its efforts to take control.

Fort Worth, TX-Alcon's Independent Director Committee is calling Novartis' merger proposal "grossly inadequate," and it is vowing to fight Novartis in its efforts to take control.

In a public statement Jan. 20 followed by a conference call with investment analysts, Thomas G. Plaskett, chairman of the committee, said Novartis' Jan. 4 announcement that it would seek 100% ownership of Alcon-with or without the approval of the minority shareholders-is "offensive."

"We . . . find the coercive tactics deployed by Novartis offensive, and believe that they demonstrate a profound disrespect for Alcon's minority shareholders, many of whom are employees that built Alcon into the highly successful company that it is today," Plaskett told the analysts. "We are greatly disappointed with Novartis' public implication that they can essentially force Alcon's minority shareholders to accept the terms of the proposal."

Sticking point

Dr. Vasella said in a conference call with investment analysts that Novartis could push through the sale of the remaining 23% by taking control of the board after it achieves the 77% ownership and ensuring a majority approval.

The statement, seen as a strong-arm tactic, was met with disapproval by members of the Independent Directors Committee, which includes Plaskett, Lodewijk J.R. de Vink, and Joan W. Miller, MD, chairwoman of the Massachusetts Eye and Ear Infirmary. The committee hired Greenhill & Co. to analyze the offer and said the result proves the fundamental value of Alcon "significantly exceeds the price that Novartis has offered."

In a letter to Dr. Vasella released with the committee's press release, Plaskett said Greenhill's analysis determined the "unaffected share price" should be close to the $164.35 closing price of Alcon as of Dec. 31. He also noted that Novartis understated achievable synergies in the transaction, and disputed the 12% premium that Novartis said it would offer minority shareholders over the "unaffected share price" as too low. Plaskett pointed to a review of about 250 "squeeze-out transactions" over the past decade and said the premium paid for the minority shares was about 27% to 30% over the share price 1 week and 1 month prior to the announcement.

"Indeed, Novartis itself set a precedent in 2005 when it paid a premium of approximately 25% to the unaffected share price to squeeze-out the minority shareholders of Eon Labs, which also represented a premium of 9% to the price paid for the majority stake," he said in the letter.

In the conference call, Plaskett declined to say what price the committee is seeking.

With net earnings growing 23.8% over the past 5 years, a 35.2% operating income margin, and a 32.5% net earnings margin, according to CEO Kevin Buehler's presentation Jan. 12 at the J.P. Morgan Healthcare Conference, Alcon has demonstrated its ability to produce profits. "We have a unique position to be able to translate products into market share into profits," Buehler told analysts attending the conference.