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Alcon IDC Says Alcon Board Cannot Decide On Novartis Merger Proposal Without The IDC's Prior Recommendation - Update

The Alcon Independent Director Committee or the IDC said Monday, that Professor Hans Caspar von der Crone, a Swiss legal and corporate governance expert, has concluded that the merger proposal from Novartis AG (NVS: Quote) cannot be approved by the Alcon Inc. (ACL: Quote) Board without prior recommendation by the IDC. In addition, the IDC said that the conclusion also refutes Novartis' stand that it would be able to unilaterally impose the merger once Novartis becomes Alcon's majority shareholder.

Citing Professor von der Crone, IDC said a board with a majority of its members appointed by the company's majority shareholder is conflicted with respect to a merger between the company and such majority shareholder.

A deal signed on the basis of the decision of a conflicted board will not be legally effective if the counterparty to the agreement was aware of the conflict of interests at the board level. Thus, a merger agreement between Alcon and Novartis will not be legally effective if it is approved by a conflicted Alcon board only. A decision of a conflicted board will only be valid if the conflict of interests at the board level has been cured by implementing specific measures.

The Alcon board, comprising a Novartis appointee, unanimously established in 2008 the requirement for the IDC's prior recommendation as the means of resolving conflicts of interests in situations such as the proposed merger between Alcon and Novartis. And the IDC's powers cannot be abolished or amended without the consent of the members of the IDC.

The IDC commissioned Professor von der Crone, as an independent third party and expert in Swiss corporate law, to review and issue a legal opinion as to the internal approval process that must be followed by Alcon in connection with Novartis' merger proposal.

Thomas Plaskett, Chairman of the IDC, said, "... regardless of Novartis' ultimate course of action, the IDC's recommendation is a mandatory step prior to the consummation of Novartis' merger proposal. "

In addition, the IDC said that the value of Novartis' proposal has steadily deteriorated since it was first announced. As of June 25, the Novartis proposal of 2.8 Novartis shares for each Alcon share is valued at $136.78 per Alcon share. The current value of Novartis' merger proposal represents an approximately 25% discount to the $181.71 in cash that Novartis has agreed to pay Nestlé S.A. for their 52% control stake in Alcon. Meanwhile, Alcon's performance remains strong, having exceeded analyst estimates in each of the past two quarters that it has reported since the merger proposal was first announced.

Greenhill & Co., Sullivan & Cromwell LLP and Pestalozzi, Zurich, act as financial and legal advisors to the IDC.

ACL rose $1.90 or 1.27% and closed Friday's regular trading session at $151.44. After hours, ACL rose further $0.72 or 0.48% and traded at $152.16. NVS rose $0.36 or 0.74% and closed at $48.85.

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by RTT Staff Writer

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