updated 4/7/2008 1:50:00 PM ET 2008-04-07T17:50:00

Switzerland’s Novartis AG said Monday it will spend about $39 billion in a two-step bid for a majority stake in U.S. eye-care company Alcon.

The deal for Alcon Inc., which makes Opti-Free contact lens solution and has 14,500 employees worldwide, would be one of the largest in Swiss history.

Novartis will initially pay food and beverages giant Nestle SA $11 billion for a 25 percent share of the Texas-based company.

Novartis will then have the exclusive right to buy Nestle’s remaining 52 percent stake in Alcon for about $28 billion between January 2010 and July 2011.

While the second step is optional, both companies would have to agree not to exercise their rights for it to fall through.

“It is quite clear in the minds of the people and the companies who signed the contract that we expect this to go through,” Nestle spokesman Francois-Xavier Perroud told The Associated Press. “However, the deal is not definitive until it’s consummated.”

Nestle chairman and chief executive Peter Brabeck-Letmathe said the deal was good for his company’s shareholders and that Novartis’ “activities are closely aligned with its own business.”

Brabeck-Letmathe on Thursday will hand over the CEO role to Paul Bulcke, who currently heads Nestle’s business in the Americas.

Analysts praised the sale as a significant success for Nestle, which snapped up Alcon in 1978 for $275 million.

Patrik Schwendimann, of Zuercher Kantonalbank, said the proceeds from the sale would allow Nestle to become debt-free by 2010.

The Vevey, Switzerland-based owner of brands such as Nescafe, Perrier and Dreyer’s has been spinning off its non-food business in recent years, while expanding its footprint in the areas of nutrition, health and wellness.

Last year Nestle bought the medical nutrition and Gerber baby foods units of Novartis for about $8 billion.

“These three deals are not connected, but they show that companies concentrate on what their real field of competence is. In our case it’s clearly food and nutrition, and in Novartis’ case it’s pharmaceuticals,” said Perroud.

Nestle said it would use the proceeds from the sale of its Alcon shares to reduce debt, buy back more of its own shares and support acquisitions in line with its focus on food, diet and lifestyle products.

Nestle spokesman Perroud said the deal will not lead to job cuts.

“I don’t suspect it will have any measurable impact on the human resources of Alcon, especially since they are active in areas in which Novartis quite obviously isn’t,” he said.

Alcon recently reported full-year profits of $1.6 billion for 2007.

Alcon shares rose sharply in afternoon trading.

Novartis chief executive Daniel Vasella said his company would borrow $5.5 billion to finance the deal, with the remainder coming out of its own reserves.

That prompted Fitch Ratings and Standard & Poor’s to downgraded Novartis, saying that while the Basel-based company will benefit from the acquisition, it was a sizeable debt load.

“Eye care will continue to grow dynamically as there is a growing unmet medical need driven primarily by the world’s aging population,” Vasella said in a statement.

He said the purchase if Alcon was in line with the Novartis strategy of focusing on high-growth segments of the health care market.

Alcon is regarded as less exposed to potential litigation from eye surgery patients than some of its rivals because it does not do much in the field of laser eye surgery. Alcon also makes Systane eye drops along with surgical equipment and implantable lenses.

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).

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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