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US funds assert minority rights in European companies

Two US pension funds, the City of Westland Police & Fire Retirement System and the Massachusetts Bricklayers and Masons pension fund have filed a class action lawsuit against Alcon, Novartis and Nestlé, alleging that Novartis’ recent offer for Alcon discriminates against minority shareholders. The complaint against the three Swiss-based companies and several Alcon directors was filed before the US District Court in New York.

On January 4 Novartis announced that it had exercised an option to purchase 52% of Alcon’s shares from Nestlé for approximately US$180 per share in cash. This transaction would give Novartis a 77% stake in Alcon, however the price Novartis aims to pay Alcon’s minority shareholders is approximately 18% less than the price Novartis is paying Nestlé, Alcon’s majority shareholder.

In the UK, as in the US, shareholders of the same class must receive equal payment for their stock. Despite campaigns across Europe to obtain equal share rights Switzerland has so far resisted calls for change.

In a statement, Grant & Eisenhofer said that Novartis had not obtained the approval of Alcon’s independent directors, but “is poised to push through the transaction regardless. This would violate Alcon’s organisational regulations, which require such a transaction to be approved by the independent directors on Alcon’s board.”

Meanwhile, Alcon’s Independent Director Committee has said that the price and other terms proposed by Novartis were “grossly inadequate” and the financial analysis upon which Novartis’ unilateral proposal was based was “fundamentally flawed”. Committee’s chairman Thomas Plaskett said: “The Committee strongly believes that the underlying historical record and management’s expected future financial performance of Alcon justify a significantly higher price than that reflected in the current proposal by Novartis. Moreover, minority shareholders have rights accorded to them that must be respected.”

Grant & Eisenhofer said the legal action was proceeding as Alcon had not formally refused the offer. “This offer seeks to bypass Alcon’s contractual protections of its minority shareholders, and force an unfair price on them,” said Grant & Eisenhofer managing partner Jay Eisenhofer. “Alcon’s public shareholders are unable to protect themselves from this inadequate offer, due to the control Novartis and Nestlé exert over the company.”

Novartis has claimed that neither Swiss nor US law protects shareholders as although Alcon is incorporated in Switzerland it is traded solely on the New York Stock Exchange and because the proposed merger is not a tender offer.

What do you think?