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Nestle and Alcon

Autor:   •  February 17, 2015  •  Case Study  •  353 Words (2 Pages)  •  2,035 Views

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Nestle and Alcon – The value of a Listing

The case talks about Nestle which is the world’s largest food company trying to assess whether a part of Alcon which is one of its major non-food holdings should be carved out for a public listing or not.  There were many reasons mentioned in the case for this carving out like the heads wanted the market to reflect the full value of Alcon and only food and beverage analysts follow Nestle group and so on. The case tries to evaluate whether it was needed at first, if yes then what impact would such an event have on Nestle’s overall valuation? Then if they did go for an IPO, on which stock exchange should they list? Nestle is a Swiss firm listed in Zurich and Alcon is operationally based in United States. There are 4 choices given to this and the pros and cons to come up with the listing choice are provided.

Swiss Listing

Pros

Cons

Simple to implement, no legal adjustments

Swiss market Size – poor visibility and scarcity of liquidity

Low Administrative Costs – same reporting schedules and investors’ announcements

Few large Institutional Investors expert in Ophthalmology

More than half operations and sales are in the US

US Listing

Pros

Cons

Attract US Investors – Liquidity availability

No more royalty deductions

Closer to headquarters, R&D Centre and primary market

High costs of reorganization

Higher visibility

Duplication of administrative costs

Dual Listing

Pros

Cons

Achieve investors of both Swiss and US thus provides the biggest market among the four listing methods

Expensive procedure – It includes Issuing costs and different Accounting Systems

Be able to target the specialty pharmaceutical investors

Inconsistent Security Laws

Flashback Effect

ADR

Pros

Cons

Be familiar with most US institutional investors, thus helps in targeting sizable American Market.

Attract international diversified funds instead of the specialty pharmaceutical investors

Less requirement than direct issuing.

Be recognized as a foreign company

Easy to trade for investors

Not a good choice for trade in secondary market as there will be high time lag and higher commission.

Key Questions to be addressed

  1. How to arrive at an appropriate valuation of Alcon?
  2. How will carving out impact the valuation of Nestle, the company?
  3. Are the reasons of spinning off justified?
  4.  On what stock exchange should Nestle list Alcon?

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