Despite Novartis Denial, UBS Makes A Strong Case That They Should Buy Alcon (ACL)

An analyst at UBS caused a flurry of speculation around Alcon Inc. (NYSE: ACL) today, sending the stock up over 5 percent after making its case that Novartis (NYSE: NVS) should take out the remaining shares of the company that it doesn't own.

UBS analyst Fabian Wenner said their analysis shows that Novartis will not be able to cover the deal’s cost of capital before 2021 unless it takes out the Alcon minorities on top of buying the 52% stake from Nestle in 2010. Wenner said the reason is "most measures to realize synergies have to be carried out at arms’ length which in our view limits the savings to c40% of the total potential."

The analyst suggested that assuming a deal gets done at a price of $181 per share for the minorities, Novartis would cover its cost of capital by 2016.

Responding to the speculation, Novartis told Bloomberg News that is has no plans to buy the minority shares. Well this is not slowing down the shares as UBS said, "the opportunity costs of delaying a full takeout are too high in our view" and suggests NVS can afford to pay $235.80 per minority share due to the $686 million in synergies. That's a nearly 50% premium from the current market price.

Well even if Novartis said it has no plans to takeout Alcon, UBS is making such an compelling reason for the deal that the company may want to take a look at this options. Speculators clearly see an opportunity as the stock has not slowed down on the denial news.

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