Nestle and Alcon- the Value of a Listing

[pic]

Post Graduate Program in Management

2009-2011

International corporate finance

NESTLE AND ALCON – THE VALUE OF LISTING

Issue

The issue presented in the case deals with carving out a part of Alcon for a public listing and what effect a carve-out would have on Nestle’s overall valuation. The questions on hand are:

1. How to arrive at an appropriate valuation of Alcon?

2. On what stock exchange should Nestle list Alcon?

Alcon is Texas-based, but Switzerland incorporated subsidiary. Hence the decision for stock exchange selection is also a prominent issue in this case.

Introduction

About Nestle

Nestle is known for food brands like Nescafe, Perrier and Buitoni. Additionally the company has some other non-food activities as well. The activities in other sectors are;

a. Alcon: It is a fully owned eye-care company. It produces ophthalmic drugs, equipments for ocular surgery and contact lens solutions.

b. L’Oreal: A large stake in the cosmetic giant

Nestle is the world’s largest food company and the world leader in Soluble coffee, Mineral water, Dairy and Infant nutrition. Also the company is very active in Ice cream, chocolate and pet food segments.

The key financial details for Nestle for the year 2001 were:

➢ Group’s net profits: CHF 5.7 billion (USD 3.5 billion)

➢ Annual sales: CHF 81.4 billion (USD 48.2 billion)

➢ Estimated global market share: Food and beverage industry: 1.4%, Processed and branded products: 2.6%

➢ Contribution of top brands Nestle, Nescafe, Nestea, Maggi, Buitoni and Friskies: ~70% of sales

➢ Two leading business segments (nearly 60% of sales): Beverages and milk products, Nutrition and ice cream

➢ Reminder of business: Prepared dishes, Cooking aids, Pet care, Chocolate, Confectionery and biscuits, Pharmaceutical products

The company employs more than 250,000 people in 508 factories and offices in over 80 countries. Sales were geographically...