In the latest development regarding the Alcon/Novartis merger (See, DM 11192), the Alcon Inc. Independent Director Committee has announced in its formal response to Novartis' proposal to acquire the minority publicly traded shares of Alcon, that the terms of the proposal are "grossly inadequate," and the financial analysis that is the base of Novartis' unilateral proposal is "fundamentally flawed."

The Committee sent its response to Dr. Daniel Vasella, Chairman and CEO of Novartis and an Alcon Board member. The Committee explained in the letter that its determinations were reached after careful review of the proposal and analysis of information regarding Alcon's financial performance, growth potential, and other factors. The Committee stated that the Novartis' financial methodology for the proposal does not reflect Alcon's documented market and operational performance and history of trading at a premium valuation compared to its peers. In addition, the Committee said it recognized that the price offered to public shareholders is "substantially lower than that which will be paid to Nestle for the controlling stake, which is virtually unprecedented in the recent history of similar transactions."

In addition to the terms, the Committee also announced that it found that Novartis' tactics were "offensive and demonstrate a profound disrespect for Alcon's minority shareholders." Many minority shareholders are employees of the company. The Committee stated that the proposal would result in inequitable and unfair distribution of the value of the company, to which the employees have contributed, to the two largest shareholders. Alcon employees are one of the largest minority shareholders.

The Committee also restated its disappointment with Novartis' "public implication that it can force acceptance of the proposal" (see, DM 11235). The Committee continues to feel that Swiss law and Alcon's Organizational Regulations specifically protect minority rights through requiring that a committee of independent directors approve a proposed merger with a majority shareholder.

The Novartis proposal has the company acquiring Alcon shares at a price of 2.8 shares of Novartis for each share of Alcon through a compulsory merger transaction. The Committee says that as of January 19, 2010, the proposal is valued at $151.43 per Alcon share due to a decline in Novartis' stock price, and that value is significantly below the $180 in cash Novartis will pay to acquire its majority position.

As of Thursday, no response to the Committee decision has been published in Novartis' media releases.

Adapted from an Alcon press release.

The Independent Committee's announcement may be found at: http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MjcwNjF8Q2hpbGRJRD0tMXxUeXBlPTM=&t=1

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