Shareholders demand more rights in Novartis/Alcon deal
Jan 20, 2010
Alcon minority shareholders react to poorer offer in takeover
Minority investors in Swiss eye-care specialists Alcon are standing up to what they claim is prejudicial treatment from pharmaceuticals firm Novartis in a complex cross-border M&A deal by filing class action lawsuits. These face-offs will continue until they are legislated against, or until the minority can prevent the transaction from going ahead, says a proxy solicitor close to the matter.
Alcon’s is one of many cases in Europe where the structure of share ownership has given rise to protest from minority shareholders. In the $39 bn merger, Novartis is buying out Nestlé’s 52 percent share in Alcon at a premium to the minority shareholders, who own 23 percent. Food giant Nestlé is to receive $180 a share in cash, while minority holders in Alcon will receive only $153 a share in Novartis stock.
Alcon’s own regulations require the merger to be approved by a committee of independent directors, and a standing committee was appointed following Novartis’ acquisition of a 25 percent stake in Alcon from Nestlé in 2008. Switzerland, where Alcon is incorporated, allows for differential pricing of stock.
In the UK, as in the US, shareholders of the same class must receive equal payment for their stock. In 2009, Swedish shareholders successfully campaigned to obtain equal share rights. It was hoped this victory would inspire wider equality for shareholders, but in Switzerland the established model remains.
The reason for this, say market regulators, is Switzerland’s high proportion of family-owned firms. Premium rates help to grease deals when majority shareholders are concentrated in a family group and directly involved in management.
Unequal rights are still not enough to put shareholders off an investment, however. ‘Investors typically go into each investment based upon its value, rather than rights,’ says the proxy solicitor. ‘Some investors take governance very seriously, using screens on their portfolio to eliminate stocks, but I would suggest that things such as employee rights weigh more heavily than shareholder rights.’