9-205-056
REV: APRIL 26, 2006

MIHIR A. DESAI VINCENT DESSAIN ANDERS SJÖMAN

Nestlé and Alcon—The Value of a Listing
Wolfgang Reichenberger, Chief Financial Officer (CFO) at Swiss food giant Nestlé, and Francisco Castañer, Executive Vice President (EVP), stepped into the offices of Peter Brabeck-Letmathe, Chief Executive Officer (CEO). On this day in early September 2001, they had important business to discuss with the company’s CEO. As EVP, Castañer was responsible for the non-food business of the Nestlé Group worldwide. Although Nestlé was primarily known for its food brands—such as Nescafé, Perrier and Buitoni—the company had some select activities in other sectors. Its two largest non-food holdings were in fullyowned eye-care company Alcon, a producer of ophthalmic drugs, equipment for ocular surgery, and contact lens solutions, and a large stake in cosmetics giant L'Oréal. For a while now, Nestlé had discussed carving out a part of Alcon for a public listing. The larger question then, that Reichenberger and Castañer wanted to discuss with Brabeck, was what effect a carve-out would have on Nestlé’s overall valuation. Assuming further that they did list Alcon, two other questions followed suit. First, how should they arrive at an appropriate valuation of Alcon? Second, on what stock exchange should they list their Texas-based, but Switzerland-incorporated, subsidiary: in New York or Zürich?

Nestlé, The World’s Largest Food Company
At the beginning of the new millennium, Nestlé was the world’s number one food company.1 It was the world leader in soluble coffee, mineral water, dairy, and infant nutrition, and also very active in the ice cream, chocolate, and pet food segments. (See Exhibit 1 for brand examples.) In 2000, net profits for the group were CHF 5.7 billion Swiss Francs (about $3.4 billion USD) on annual sales of CHF 81.4 billion (about $48.2