PARIS -- Swiss drugmaker Novartis said yesterday that it would pay Nestle $11 billion for a 25 percent stake in Alcon, the world's biggest eye-care company, in the first step of a deal that could become a full acquisition.
The deal would be one of the largest in Swiss history. It represents a bet by Novartis AG that it could lift growth by latching on to Alcon Inc., which makes Opti-Free contact lens solution, has 14,500 employees worldwide and is the world's most profitable eye-care company.
Alcon sells a range of pharmaceutical, surgical and consumer eye-care products used to treat diseases, disorders and other conditions of the eye. Novartis said Alcon would make a strong strategic fit with its contact-lens and ophthalmological drugs business.
The companies said that Novartis, based in Basel, Switzerland, is acquiring an exclusive option to acquire Nestle SA's remaining 52 percent stake for about $28 billion, which would bring the total cost of the deal to $39 billion. As part of that deal, Nestle also has the right to require Novartis to buy the stake.
"The margins are higher than our pharma business and are obviously very attractive," said Daniel L. Vasella, Novartis' chairman and chief executive officer.
Novartis shares closed 1.4 percent lower at 51.65 Swiss francs ($50.91). Shares in Nestle rose 1 percent to close at 516.50 francs ($509.13).
Jerome Berton, a pharmaceutical sector analyst at Aurel Securities in Paris, called the deal "an acquisition in all but name."
"It's quite a smart move for Novartis," Berton said. "It's quite a lot of money, but Novartis has the resources."
Pharmaceutical companies are eager to find new sources of growth, Berton said, amid competition from generics and pricing pressure from governments and institutional buyers.
The deal "also gives Novartis emerging-market exposure that it lacks currently," he said.
Novartis will pay $143.18 per share for the 25 percent stake, below Alcon's closing price Friday of $148.44. If it chooses to buy Nestle's remaining 52 percent between 2010 and 2011 when the option becomes available, it will pay a fixed price of $181 a share. Nestle, in turn, has an option to sell its remaining majority holding of shares in Alcon to Novartis at the lower of either $181 per share or the average share price during the week preceding the exercise plus a premium of 20.5 percent.
Alcon is incorporated in Huenenberg, Switzerland, but trades on the New York Stock Exchange. It had sales last year of $5.6 billion, split evenly between the United States and the rest of the world, and net income of $1.6 billion.
Alcon shares rose 1.5 percent, or $2.19, to $150.63 yesterday.
Novartis said it would finance the purchase of the 25 percent Alcon stake with internal cash reserves as well as about $5.5 billion in borrowing.
"This acquisition furthers our strategy of accessing high-growth segments of the health care market while balancing inherent risks," Vasella said. "The strategic fit of Alcon and Novartis is excellent with our complementary product portfolios and R&D; synergies. Eye care will continue to grow dynamically as there is a growing unmet medical need driven primarily by the world's aging population."
For its part, Nestle said yesterday that it would use the proceeds of the sale to pay down its 21 billion Swiss francs, or about $21 billion, of debt and continue a share buyback program that calls for it to repurchase about 25 billion francs of its shares over three years.
The Associated Press contributed to this article.