Novartis has moved to further diversify from its core prescription medicines base by paying $11 billion (€7 billion) for a 25 per cent stake in Alcon, Nestlé's eyecare business, in the first step to taking majority control.
The Swiss pharmaceuticals group also has taken an exclusive option to buy out Nestlé's remaining 52 per cent stake for a further $28 billion between January 2010 and July 2011.
The transaction had long been recommended by analysts as benefiting both sides.
But while shares in Nestlé rose 1 per cent to SFr516.5 (€326.09), Novartis shares fell 1.4 per cent to SFr51.65 on fears of overpaying.
Denise Anderson, Landsbanki Kepler analyst, said the deal "wasn't a bargain".
The deal will extend Novartis's range amid rising competitive pressures and regulatory tensions in core pharmaceuticals. Daniel Vasella, chairman and chief executive, said the purchase would further Novartis's strategy of "accessing high-growth segments of the healthcare market while balancing inherent risks".
Alcon is the world's largest eyecare company with sales of $5.6 billion and net income of $1.6 billion last year. The group, which has achieved above-market annual sales growth of 13 per cent in recent years, develops and sells pharmaceutical, surgical and consumer eyecare products.
Nestlé said the sale would release funds to cut borrowing. The proceeds could also be used for buybacks and acquisitions.
The deal triggered speculation that Nestlé might pounce on L'Oréal, the French cosmetics group in which it has a 29 per cent stake. Nestlé said it would not be making a decision on what to do with its holding before 2009.
L'Oréal rose as much as 4.6 per cent in early trading before closing 2.1 per cent higher at €83.17.
Earlier this year, Peter Brabeck, Nestlé chief executive, made it clear that the firm's stake in L'Oréal is more than just a financial investment. "It has business synergies that are interesting," he said, adding that he felt under "no time pressure" to abandon L'Oréal.
Nestlé has explored combining its strengths with L'Oréal through two joint ventures: one called Inneov, which makes "beauty pills" for hair and skin, and another called Galderma Pharma, which makes dermatological products. Mr Brabeck believes these ventures could be a precursor to deeper collaborations.
- (Financial Times service)
