After almost a year of wrangling with recalcitrant minority shareholders, Novartis ($NVS) has wrapped up a deal to buy the rest of eye care company Alcon ($ACL). Novartis will still trade 2.8 shares of its own stock for each Alcon share--but it's adding enough cash to make sure Alcon shareholders get $168 worth of value each. That's $15 a share more than its first offer was worth to minority shareholders, who balked at trading their shares for less than Novartis had paid Nestle for its 77 percent stake.
So, the new price is derived directly from Nestle's: It's an average of the two prices Novartis paid in its two-stage deal for majority control. Novartis coughed up $10.4 billion, or $143 per share, for a minority stake in 2008, Then, in January of this year, the Swiss drugmaker paid $28.1 billion, or $180 per share, for the rest of Nestle's shares. Averaging the two directly addressed the minority shareholders' fairness argument.
In another interesting twist, Novartis has engineered a way to soften the blow of issuing the 108 million new shares necessary to do this deal. The company plans to buy back $5 billion worth of stock, by relaunching the $10.4 billion buyback program approved in 2008. As analyst Andrew Weiss of Bank Vontobel told Bloomberg, that makes this transaction more like an all-cash deal, balance-sheet-wise.
The agreement with minority shareholders will also put to rest an acrimonious tug-of-war over that 23 percent minority stake in Alcon. The eye care company's independent directors fought Novartis hard for more money, by enlisting the press and Swiss legal experts, and threatening litigation. Now, the standoff is no longer a distraction, Weiss said: "Both parties have buried the hatchet and can move on to the daily agenda."