Nestlé's sale of Alcon fuels speculation

On the first day back, the takeover fun began. Novartis' purchase of Nestlé's remaining 52% stake in Alcon may appear a dull transaction (it's the second stage of a deal initiated in 2008) in a dull arena of contact lenses but it's intriguing for many reasons. First, Novartis is short-changing Alcon's minority investors in shameless fashion by ignoring the idea that all shareholders should be treated equally. Outside investors, owning 23% of Alcon, are being offered $153 a share in Novartis stock whereas Nestlé gets $180 in cash. Novartis deserves its round of boos, but its hard-nosed calculation that most minority investors will accept inferior terms will probably prove correct. It's an old rule: don't leave yourself exposed by holding shares in a company where one party owns 75% or more. Second, the assumption that Nestlé would not interfere in the battle of Bournville suddenly looks less safe. Nestlé's coffers are now stuffed with cash and it's an open secret that the Swiss group covets Cadbury's chewing gum business. Does this imply a Hershey-fronted bid for Cadbury bankrolled by Nestlé? That's still a very big leap, not least because Hershey is still tangled up in its trust structure, but Kraft, the only declared bidder, will be unnerved. It cannot rely on Nestlé to bide its time and pitch for parts of Cadbury post-takeover. Nestlé made token comments about buying back shares but nothing it said ruled out a direct tilt at Cadbury. Keep 'em guessing seems to be the policy – very sensible too. The wider significance of Novartis' move on Alcon lies in pharmaceutical group's new enthusiasm for consumer healthcare products. This is part of the move away from a "white pill/western market" concentration, as GlaxoSmithKline's Andrew Witty puts it, and Alcon is the most spectacular deal to date. Generic competition and the threat of falling prices in the US prescription drug market have inspired the change. Selling established over-the-counter healthcare products to newly-rich consumers in the Far East is deemed a better prospect than trying to squeeze cash out of state-funded healthcare budgets in the west. Some bets, inevitably, will turn sour – and Novartis' is certainly paying a big price, which perhaps explains its eagerness to recoup a few dollars from the Alcon minorities. But the general trend is unmistakable – consumer healthcare is fashionable again.