Nestle and Alcon

Nestle and Alcon – The Value of a Listing

Nestle, being the world’s largest food company, was the world leader in soluble coffee, mineral water, dairy and infant nutrition. It was also very active in other product sectors like ice-cream, chocolate and pet foods. Nestle was the world’s number one food company at the start of the new millennium. It was the leader with 1.4% of the world market share in the food and beverage industry and 2.6% of the market share in the processed products. Its sales were spread geographically across US and Europe, with both regions contributing to around 30% each, the rest coming from Asia, Africa, and other regions. Nestle grew by various acquisitions across the world, with the company having targets for both internal and external growth.

Nestle had two significant investments outside the foods segment. One was a stake in L’Oreal and the other was the wholly owned ophthalmology company Alcon. Alcon was founded in 1945 by two pharmacists. It specialized in ophthalmic products. It was publicly listed in 1971 and was acquired by Nestle in 1977 off the New York Stock Exchange and consequently made into a Swiss domiciled company in 1992. Alcon was the world’s leading ophthalmology company which was a leader in almost every category it was into. It developed manufactured and marketed ophthalmic pharmaceuticals, ophthalmic surgical equipments, Contact lens care products, and Consumer eye care products. Its global sales represented 19% of the total ophthalmic pharmaceutical market. It was twice as large as its nearest competitor. It had a strong focus on R&D with investments of around $1 billion over the past five years.

Alcon’s Impact on Nestlé’s Financing Strategy

Alcon contributed 5% of the overall sales of Nestle and 12% of EBIT. The CEO of Alcon thought that the value of Alcon was lost in the huge food and beverage division of Nestle. Alcon in itself was a large pharmaceutical company and its value was not being recognized as...