Having acquired 77% of Alcon, Novartis now has its eyes on the remaining few shares, which lie in the hands of minority shareholders, but will it be able to acquire them? Novartis says yes — and that it has the law on its side — but Alcon says no — and that it also has the law on its side.

So what’s going on?

There’s a long story behind this potential merger, which PharmTech has already reported on (Novartis Buys Majority Stake in Alcon, Novartis faces legal action over Alcon merger and Novartis cannot force Alcon merger), but it boils down to the fact that Novartis is still 23% shares short of full ownership of Alcon, which currently rest in the hands of minority shareholders.

According to a report from Reuters, Swiss merger law would allow Novartis to push a merger through with the approval of two-thirds of shareholders (i.e. Novartis) and a simple board majority, which shouldn’t be difficult given that Novartis has appointed several directors to the board.

However, Alcon claims that the merger cannot go ahead without the approval of Alcon’s Independent Director Committee (IDC), which was established in 2008 after the Novartis/Nestle deal to “protect the interests” of Alcon’s minority shareholders.

In a statement, Alcon explained: “The Novartis designees have a clear conflict of interest with respect to any decision regarding Novartis’ merger proposal to minority shareholders. As previously announced by the IDC and supported in a legal opinion… the role of non-conflicted directors in related-party transactions is established both by Swiss law and Alcon’s organizational documents. Accordingly, a positive recommendation by the IDC is required”.

And at the moment the IDC still says no because the price Novartis is offering minority shareholders is too low.

“The IDC’s position is consistent not only with Swiss Law and Alcon’s Organizational Regulations, but with widely accepted principles of good corporate governance,” Thomas G. Plaskett, Chairman of the IDC, said in a statement from Alcon.

But Novartis is also convinced that it has the Swiss law on its side. “Merger transaction decisions must be made by the full board and cannot be subject to a veto right by a sub-set or committee of directors. The Alcon IDC’s assertions that IDC approval is required to approve a merger with Novartis is inconsistent with well-accepted principles of Swiss law,” Peter Nobel, Law Professor at the University of Zurich, explained, according to a Novartis statement.

Despite its position, Alcon has also frequently iterated that it is not against a merger. “An agreed transaction is in the best interests of all stakeholders and is clearly preferable to protracted litigation, which would delay critical steps in the integration process,” said Alcon. “However, we are ready to defend the rights of Alcon and its minority shareholders if Novartis refuses to negotiate a fair deal.”

The challenge has been issued, but we may have to wait a while to find out what the outcome will be…