Novartis faces legal action over Alcon merger

A class of action has been filed that seeks to prevent Novartis' proposed merger with eye-care company Alcon, which will see Alcon's minority public shareholders "squeezed out at an unfair price", according to a statement from US law firm Labaton Sucharow LLP. Novartis has offered two groups of Alcon shareholders two different prices for the same stock – with the minority shareholders being offered approximately 18% less than the price Novartis is paying Alcon's majority shareholder, Nestle. The class of action was filed on behalf of Alcon's minority public shareholders.

"A simultaneous offer with such a significant disparity between the majority and minority shareholders is extremely unusual and rare," Christopher J. Keller, a partner at Leabton Sucharow, explained in the press statement. He also added that the minority shareholders should be given the opportunity to seek legal recourse.

Novartis announced its intention to acquire Nestle's stake in Alcon, as well as the remaining minority shares in Alcon through an all-share direct merger, on 4 January 2010. In response, Alcon released a statement explaining: "The Alcon, Inc. Independent Director Committee, in response to comments made by Novartis AG, stated its belief that Alcon has established certain important protections for the benefit of Alcon's minority shareholders against a coercive takeover bid and is disappointed that Novartis is attempting to circumvent those protections and corporate governance best practices."

The statement from Labaton Sucharow said: "Novartis is effectively treating the proposed merger as transaction above the law. Because Alcon is incorporated in Switzerland, but its publicly-traded stock trades on the New York Stock Exchange alone, and because the proposed merger is not a tender offer, Novartis has brazenly touted that now law protects Alcon's minority shareholders – most of whom are American institutional investors – and that now law restricts its ability to thrust the proposed merger upon Alcon's minority shareholders."

The merger requires the approval of the boards of directors of Novartis and Alcon. In its press statement, however, Alcon said that Novartis had "expressed its view that, if it were unable to obtain the required approval of the Alcon Board of Directors and the Independent Director Committee, Novartis would simply wait until it owned 77% of Alcon to then unilaterally impose the terms of the proposed merger on the minority shareholders."

The Lebaton Sucharow statement said: "Novartis is using its de facto status as Alcon's majority and controlling shareholder to ram the proposed merger through to the lopsided detriment of Alcon's minority public shareholders. The proposed merger is structurally coercive and clearly offers the class of Alcon's minority shareholders an unfair price."

www.labaton.comwww.novartis.comwww.alcon.com