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Fort Worth Star-Telegram:

Minority rights are a hallmark of free markets as well as free societies. So when a company tramples on that principle, look out.
And if the offender happens to be your new boss, brace for culture shock.

Last week, the Swiss drugmaker Novartis said it was buying control of Alcon, the Fort Worth company renowned for its eye-care products and friendly workplace. The deal was expected, because Novartis bought a big chunk of Alcon from Nestle in April 2008, with an option to buy the rest this year.

Novartis said it also plans to acquire Alcon's outstanding stock, the 23 percent not owned by Nestle and traded on the New York Stock Exchange. The shocker was that Novartis wants to pay 15 percent less for those minority shares, and pay with Novartis stock only.

It's not a take-it-or-leave-it offer, either. Novartis plans to force the sale - what it calls a merger - and says it doesn't need approval from other Alcon shareholders, independent directors or the stock exchange.

In a conference call last week, analysts repeatedly asked how that could happen. Alcon and the NYSE have rules to protect minority shareholders from this exact situation.

Novartis' position: After it bags the Nestle shares, it will have a 77 percent stake, and that translates into overwhelming control. Under Swiss law, the company said, adding the minority shares is a merger, not a tender offer, and Novartis can vote to proceed.

After "we close the deal," General Counsel Thomas Werlen said, "then obviously we are in charge and then it's a different game."

This may be how the Swiss play hardball, but it's a bad idea. Three lawsuits have already been filed, and an Alcon committee of independent directors has hired a law firm and financial firm to evaluate options.

It's not exactly a friendly introduction to Alcon employees, either. They're minority shareholders in their own right, with stock options and shares in retirement accounts, so they have a vested interest in getting the market price.

More important, they're the most valuable asset at Alcon - at least that's what they've been told for years. When Alcon was an independent company and after Nestle bought it in 1978, management created a corporate culture that fostered loyalty and attracted scientists to its campus south of downtown Fort Worth.
Alcon pays well, nurtures talent and offers a retirement plan that effectively matches 12 percent of workers' pay if they contribute at least 5 percent. The average sales rep makes $100,000, and voluntary turnover is 3 percent.

Read Zwerling, Schachter & Zwerling Attorney Robert Schacter original quotes.

If it were that simple, why not operate all takeovers that way? Following that logic, acquirers could buy 51 percent of a company and cram down their version of "a fair price" to everyone else.

Lawsuits are standard in almost all buyouts, because of disagreements over what's fair. Robert Schachter, a lawyer at Zwerling, Schachter and Zwerling in New York, says that buyers have to demonstrate how they reached a fair price if all shareholders don't accept the offer.

Novartis' method: It took Alcon's stock price in 2008, before it bid for the company, and added a 12 percent premium. That comes to $153 a share, or 2.8 shares of Novartis stock at the end of 2009. Alcon stock (ticker: ACL) closed at $153.46 Tuesday, down $1.59.

What about the market price? Alcon's stock slumped as the financial markets cratered and then recovered, and was trading at more than $164 before the deal was announced. What about the Nestle price? It's getting $180 a share in cash, what was set in 2008. And since when are shareholders not supposed to get a bigger bump after a bidder emerges?

The same week of the announcement, Novartis' stock price fell, and Alcon's minority shareholders were slated to get the equivalent of $147 a share. According to one lawsuit, that's $2.3 billion less than the Nestle price.

That's not a takeover, that's a takedown.

Mitchell Schnurman's column appears Sundays and Wednesdays. 817-390-7821

http://www.star-telegram.com/local/story/1888878-p2.html

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