Novartis launches $40bn Alcon buyout

Drug group to buy Nestlé's stake, which could see food company bid for Cadbury

The Swiss drugs giant Novartis has offered $28.1bn (£17.4bn) for Nestlé's 52 per cent stake in the eyecare group Alcon, as it follows a number of rivals in moving away from a reliance on prescription medicines. The deal also led analysts to speculate that Nestlé may use the funds raised to enter a bidding war for Cadbury, the UK confectioner.

Novartis yesterday disclosed that it has exercised an option to boost its Alcon holding to 77 per cent, by buying the majority stake held by the Swiss food company. It has also indicated that it will seek the remaining 23 per cent from minority shareholders, adding that it is willing to pay $11.2bn for that stake.

Minority shareholders will be unimpressed by the fact that they are being offered $153 a share, compared to Nestlé's $180. "[It] is peculiar given we currently understand they did not need to bid for the minority and Alcon's current price is $164 and they bought Alcon's stake at $181," said the Evolution Securities analyst Dominic Valder.

"We think that it is likely a ploy to spook the predominantly arbitrageurs who own Alcon and limit the amount they need to pay for the Alcon stub. We think they will likely have to pay more than $153."

Others agreed and pointed out that Novartis needs full control of Alcon in order to make annual tax savings of $300m, which it says will be gained after three years. The company believes it is capable of saving as much as $200m by owning just Nestlé's current stake. Previously, analysts have indicated that a combined group was likely to be able to achieve savings of up to $900m.

Novartis's move for Alcon did not surprise the market – the group is following a number of big healthcare companies in reducing its reliance on blockbuster drugs and moving into other sectors. The industry has suffered as a result of the rise of generic drug groups, which copy profitable treatments when patent protection lapses.

Nestlé said the sale of its stake in Alcon would allow it to launch a Sfr10bn (£6bn) share buyback programme. A number of analysts said that was less than forecast, and speculated that the group could instead use the Alcon proceeds to finance a tilt at Cadbury.

"This implies that Nestlé has made use of just $10bn of the forecast $28.1bn stake sale proceeds and adds to market speculation that Nestlé might be in the process of building a 'war chest' to enter the Cadbury fray," said the Charles Stanley analyst Jeremy Batstone-Carr.

The EU yesterday gave conditional approval to the US food group Kraft for its £10bn hostile bid for Cadbury. Any move by Nestlé, which owns brands such as KitKat, would also be likely to face stiff anti-trust hurdles. A Nestlé spokesperson declined to comment.

Mr Batstone-Carr added that Kraft remains favourite to net Cadbury and that Nestlé's interest is likely to be limited to Cadbury's chewing gum business. Cadbury has confirmed tentative approaches from Hershey in the US, and Italy's Ferrero International, but yesterday refused to comment on whether it had received any informal approaches from Nestlé.

Swine flu swindle? Calls for EU debate

A key European Union body is considering an investigation into the role of drug companies in the World Health Organisation's swine flu campaign. The Parliamentary Assembly of the Council of Europe (Pace) has had a request to hold an emergency debate this month on the "influence" of pharmaceutical groups on the WHO's efforts to inform governments on the dangers of an H1N1 pandemic.

The WHO's "false pandemic" flu campaign is "one of the greatest medicine scandals of the century," claimed Dr Wolfgang Wodarg, chairman of the PACE Health Committee. A number of drugs companies have made hundreds of millions of pounds after governments across the globe submitted orders for millions of doses of specialist vaccine and treatments. The number of swine flu deaths is dramatically lower than initial predictions had forecast.