Novartis Ag · SIX:NOVN
Novartis — Merger or Acquisition (January 2010)
39 slides from Novartis's merger presentation, Jan 4, 2010
Slide 1: Alcon acquisition: Creating a global leader in eye care
A Alcon acquisition Creating a global leader in eye care Investor presentation January 4, 2010 I) NOVARTIS
Slide 2: Disclaimer
Disclaimer These materials contain forward-looking statements that can be identified by terminology such as "will strengthen," "would have enhanced opportunities," "would be established," "complementary assets,” "synergies," “estimated,” “expected,” "potential," “accretive,” “dilutive,” “anticipate,
Slide 3: Additional US-related information
Additional US-related information Novartis expects to file a registration statement relating to the merger with the US Securities and Exchange Commission (SEC). The registration statement will contain a prospectus relating to the shares to be issued in the merger. Such prospectus will contain import
Slide 4: Agenda
Agenda = Summary = Strategic rationale = New Novartis eye care division = Transaction details = Financial impact = Conclusion 4 | Alcon | Investor Conference Cal | January 4, 2010 t Novartis
Slide 5: Summary
Summary = Novartis to acquire 77% majority control of Alcon and proposes merger * Completion of Nestlé transaction: Exercise call option to acquire remaining 52% Alcon stake for USD 28.1 billion after 25% purchase in mid-2008 for USD 10.4 billion « Merger proposal: Proposal for all-share direct merg
Slide 6: Agenda
Agenda = Summary = Strategic rationale = New Novartis eye care division = Transaction details = Financial impact = Conclusion 65 | Alcon | Investor Conference Cal | January 4, 2010 tb Novartis
Slide 7: Eye care sector: Strong growth platform with excellent fit
Eye care sector: Strong growth platform with excellent fit with our focused healthcare portfolio Selected examples @ Aging population » 38 million people in US > age 65 * 27 million people in Japan > age 65 » 9 million people visually impaired in US . ili ij 1 @ Unmet medical need 22 million people
Slide 8: Eye care historically one of the fastest growing specialty therapeutic sectors
Eye care historically one of the fastest growing specialty therapeutic sectors Top 5 pharmaceutical therapeutic areas Top 5 surgical / medical device areas CAGR 2004-10 (%) CAGR 2004-10 (%) 15% 12% 11% 11% Oncology Eye Endo- Anti Musculo- immuno prepa. crine _infective skeletal agents _ rations Orth
Slide 9: Alcon and Novartis: Address broad range of needs and eye care business segments
Alcon and Novartis: Address broad range of needs and eye care business segments 2008 pro forma net sales: USD 8.5 bn {§§ Global leader in ophthalmic surgical products Ba Complementary pharmaceutical portfolios for diseases in front and back areas of the eye Broad contact lens portfolio and advanced
Slide 10: Alcon and Novartis: Complementary businesses
Alcon and Novartis: Complementary businesses 2008 net sales USD bn . 9 Surgical 29 : 29 padiess = 10% cr global vision sector = Medicines for different Pharmaceuticals 2.6 0.512 3.4 areas of eye = Strengthened innovation Consumer 0.8 0.2 1.0 capabilities eye care - = Manufacturing and Goniactiensas
Slide 11: Strong strategic foundation for expanding worldwide leadership in eye care
Strong strategic foundation for expanding worldwide leadership in eye care « Focus on cataract, glaucoma and retinal diseases * Build core brands globally » Expand R&D in age-related eye diseases = Combine Alcon’s excellence in development and formulation capabilities with Novartis’ rich and complem
Slide 12: Alcon: Expected cost synergies from full ownership
ee Cost of Goods Sold 30 Marketing & Sales 125 Research & Development 10 General & Administration 135 Total 300 12] Alcon | Investor Conference Call | January 4, 2010, tb Novartis Alcon: Expected cost synergies from full ownership
Slide 13: Agenda
Agenda = Summary = Strategic rationale = New Novartis eye care division = Transaction details = Financial impact = Conclusion 481 Alcon | Investor Conference Call | January 4, 2010 tb Novartis
Slide 14: Alcon: The new Novartis eye care division
Alcon: The new Novartis eye care division 2008 pro forma Group net sales: USD 47.8 billion (+9% in USD)! Vaccines & Consumer Diagnostics Health USD 25.8 bn’ USD 1.8 bn USD 7.6 bn USD 4.1 bn? USD 8.5 bn Collaboration --------------}--------- CIBA Vision USD 17 bn = Aleader in = No. 2in flu = No.2gene
Slide 15: Novartis: Focused diversification in healthcare
Novartis: Focused diversification in healthcare 2007 2008 pro forma 9/ 1996 14% Pharma 18% ll Vaccines & nent Diagnostics 8% Sandoz a a lH Consumer 4 Health 16% \ ©) Healthcare ™ Alcon 4% i Other All Healthcare All Healthcare IHEXAL Woe CHIRON Spin-off of Ciba Syngenta formed with Divestments of las
Slide 16: Diversified healthcare portfolio expected to offer attractive growth and returns
Diversified healthcare portfolio expected to offer attractive growth and returns — 2008 global Sector growth Sector sector size CAGR 2009-2014 EBIT margin (USD bn) 5% 25-35% 700 9% 15-25% 21 diagnostics Jcenercs | 9% 10-20% 90 4% 10-20% 113 6-7% 20-30% 26 CAGR — Compound annual growth rate EBIT — Ea
Slide 17: Consistent strategy to sustain profitable growth and mitigate risk
Consistent strategy to sustain profitable growth and mitigate risk (4) Step up innovation focusing on differentiated products (2) Selectively strengthen portfolio while addressing patient needs (3) Expand in high-growth markets @ Improve organizational efficiency 17| Alcon | Investor Conference Call
Slide 18: Agenda
Agenda = Summary = Strategic rationale = New Novartis eye care division = Transaction details = Financial impact = Conclusion 18] Alcon | Investor Conference Cal | January 4, 2010 tb Novartis
Slide 19: Gaining full ownership of Alcon
Gaining full ownership of Alcon Novartis Nestlé = 25% stake acquired = 52% stake to be acquired | | * Proposal for all-share for USD 10.4 bn! for USD 28.1 bn direct merger for 23% stake for USD 11.2 bn * USD 10.6 bn acquisition price reduced by 2007 Alcon dividend payment of USD 0.2 bn paid in May 2
Slide 20: Alcon majority stake: Completion of Nestlé deal
Alcon majority stake: Completion of Nestlé deal 2008 74 143 10.4! 2010 4 143 0.6 152 181 275 156 180 28.17 Total 230 des 38.5 17% premium? + USD 10.6 bn acquisition price reduced by 2007 Alcon dividend payment of USD 0.2 bn paid in May 2008 2 USD 28.1 bn plus 1.45% annualized interest from January 1
Slide 21: Alcon majority stake: Financing
Alcon majority stake: Financing Deal value = USD 10.4'bn Financing = ~USD 5 bn cash sources = ~USD 5 bn of external short-term borrowing Credit rating Moody's: Aa2 / P-1 S&P: AA- / A-1+ Fitch: AA / F1+ USD 28.1? bn USD 14.2 bn cash end of September 2009 Novartis cash flow generation until closing Sh
Slide 22: Cost synergies from Alcon majority stake
Cost synergies from Alcon majority stake dependent on arm’s-length arrangements Cost of Goods Sold 20 Marketing & 125 Sales General & Administration oS Total 200 22| Alcon | Investor Conference Call | January 4, 2010 Supply chain optimization Co-promotion opportunities Back-office consolidation = Hi
Slide 23: Merger proposal: Key terms
Merger proposal: Key terms 2.80 Novartis shares for each Alcon share 205 million Novartis shares? (of which 107 million shares are already issued) USD 11.2 billion USD 153 12% Merger of Alcon Inc. into Novartis AG under Swiss Merger Act (both incorporated in Switzerland) + Assumes CHF / USD exchange
Slide 24: Merger proposal: Offer considerations
Merger proposal: Offer considerations = Assessment of Alcon’s fundamental value = Alcon share price adjusted for speculation » USD 168 per share (a 17% premium) paid for 77% majority stake = Lower earnings expectations for Alcon since April 2008 » Incremental annual synergies from merger (USD 100 mi
Slide 25: Merger proposal: Unaffected price and premium
Merger proposal: Unaffected price and premium Adjustments for minority buy-out speculation Methodology 1: Alcon trades in line with changes 130 — 136 133. in Alcon EPS expectations Alcon trades in line with changes in Alcon EPS 111-116 113 expectations and changes in market P/E multiples Methodology
Slide 26: Merger proposal: Novartis share issuance
Merger proposal: Novartis share issuance * Preservation of current strong credit rating important to Novartis = Novartis shares expected to come from: * 107 million treasury shares * 98 million newly issued shares (subject to Novartis shareholder approval) » In total, a 9% increase in fully diluted
Slide 27: Alcon overview: Transactions to 100% ownership
Alcon overview: Transactions to 100% ownership January: Call option exercised to acquire Nestlé’s remaining 52% Alcon stake, increasing Novartis stake to 77% Proposal for all-share direct merger under Swiss law to acquire remaining 23% Merger requires approval by stake in Alcon for USD 11.2 billion
Slide 28: Agenda
Agenda = Summary = Strategic rationale = New Novartis eye care division " Transaction details = Financial impact = Conclusion 28] Alcon | Investor Conference Call | January 4, 2010 tb Novartis
Slide 29: Transaction summary: Implied valuation
Transaction summary: Implied valuation Deal value* USD 38.5 bn USD 11.2 bn USD 49.7 bn Pershare USD 168 USD 153 USD 164 purchase price Implied 2010 multiples EBITDA‘? 17.9x 16.2 x AT.5X PIES 22.7 x 20.6 x 22.2x PEG! 17 1.6 47 Premium +17%? +12%° +16%" * Deal value excludes the assumption of USD 3.0
Slide 30: Transaction summary: Estimated EPS impact
Transaction summary: Estimated EPS impact Estimated 2011 impact Eps!2 ~(3)% ~(7)% ~(9)% Core EPS? ~5% ~(4)% ~1% Fully synergized ~6Y ~(4)9 ~1Y Core EPS* ov M2) ue + Includes pre-tax estimates for amortization and one-time costs related to the transactions; in particular assumes USD 2.1 billion of pr
Slide 31: Agenda
Agenda = Summary = Strategic rationale = New Novartis eye care division * Transaction details = Financial impact = Conclusion 311 Alcon | Investor Conference Call | January 4, 2010 t) Novartis
Slide 32: Conclusion
Conclusion = Creating an even stronger global leader in growing eye care sector = New eye care division to include Alcon, CIBA Vision and certain Novartis ophthalmic medicines = Alcon to become 77% majority-owned subsidiary after completion of Nestlé agreement — closing expected in H2 2010 = Proposa
Slide 33: Appendix
Appendix tb Novartis
Slide 34: Transaction summary: Estimated EPS impact
Transaction summary: Estimated EPS impact Estimated 2011 impact Eps‘? ~(2)% ~(3)% ~(7)% ~(11)% Core EPS? ~2% ~5% ~(4)% ~2% Fully synergized NA ~6% ~(4)% ~3% Core EPS* * Includes pre-tax estimates for amortization and one-time costs related to the transactions; in particular assumes USD 2.1 billion o
Slide 35: Alcon majority stake: Transaction summary
Alcon majority stake: Transaction summary Deal value USD 10.4 bn USD 28.1 bn! USD 38.5 bn Per share USD 143 USD 1802 USD 168 purchase price IBES ERS 2008: USD 6.30 2010: USD 7.41 2010: USD 7.41 estimate Implied P/E 2008: 22.7 x 2010: 24.3 x 2010: 22.7 x Implied PEG? 2008: 1.5 2010: 1.9 2010: 1.7 Pre
Slide 36: New Novartis eye care division: Surgical
New Novartis eye care division: Surgical The global leader in cataract surgery Surgical sales Growth drivers (USD m) = Continuous product development to improve vision after surgery aoe = Growing share in established ° countries = Adoption of advanced technologies in emerging markets kK’ 36] Alcon |
Slide 37: New Novartis eye care division: Pharmaceuticals
New Novartis eye care division: Pharmaceuticals Broad product portfolio Pharmaceutical sales Growth drivers (USD m)12 = Strong pipeline in many treatment areas = Global product launches = More convenient dosing and multiple-action products == i mG 2002 2008 = pro forma pro forma + Excludes USD 0.9 b
Slide 38: New Novartis eye care division: Contact lenses
New Novartis eye care division: Contact lenses Advanced technologies Contact lens sales Growth drivers (USD m) = Accelerating innovation in lens design and materials P = CAGR = Demand in emerging markets +8% (particularly Asia-Pacific) = Top reasons for contact lenses: 1.5 Health and comfort Fs S =
Slide 39: New Novartis eye care division: Consumer
New Novartis eye care division: Consumer Many global brands — Consumer sales Growth drivers (USD m) = Global leadership and above-sector growth CAGR = Maximizing global launches +8% of contact lens disinfectants 1.0 = Growth in “dry eye” brands — environmental irritants 0.7 2002 2008 pro forma pro f