Nestle and Alcon
Autor: maheedhar kaki • February 17, 2015 • Case Study • 353 Words (2 Pages) • 1,963 Views
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
- How to arrive at an appropriate valuation of Alcon?
- How will carving out impact the valuation of Nestle, the company?
- Are the reasons of spinning off justified?
- On what stock exchange should Nestle list Alcon?
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