The medical device arena marked up two billion-dollar deals yesterday, those deals serving to make big companies even bigger.

Pharma giant Novartis (Basel, Switzerland) reported that it will pay $39 billion in a two-step bid to acquire a majority stake in Alcon (Huenenberg, Germany/Fort Worth, Texas), an eye company titan.

And major wound care and therapeutic surface developer Kinetic Concepts (KCI; San Antonio, Texas) said it will acquire LifeCell (Branchburg, New Jersey), a maker of tissue repair products for use in reconstructive, urogynecologic and orthopedic surgical procedures, by paying about $1.7 billion for LifeCells' shares.

Novartis's deal for Alcon, a maker of pharmaceuticals, surgical instruments, contact lens care solutions and other vision care products, is considered one of the largest in Swiss history.

Novartis will initially pay food and beverage company Nestle (Vevey, Switzerland) $11 billion (€7 billion) for a 25% stake of the company. Nestle then will sell 74 million of its shares of Alcon common stock to Novartis for $143.18 a share in cash.

Novartis will then have the exclusive right to buy Nestle's remaining 52% stake in Alcon for about $28 billion (€17.8 billion) between January 2010 and July 2011. In that phase of the deal Alcon's shares will be valued at about $181, though Nestle could get a 20.5% premium above the price for Alcon shares when finally sold.

While the second step is optional, both companies would have to agree not to exercise their rights for it to fall through.

"It is quite clear in the minds of the people and the companies who signed the contract that we expect this to go through," Francois-Xavier Perroud, a Nestle spokesman, told the Associated Press. "However, the deal is not definitive until it's consummated."

Nestle acquired Alcon in 1978 for $275 million and sold about 23% of the firm via a spin-off for $2.3 billion in 2002.

Nestle has been divesting its non-food businesses in recent years, while expanding its footprint in the areas of nutrition, health and wellness. Last year Nestle bought the medical nutrition and Gerber baby foods units of Novartis for about $8 billion.

"These three deals are not connected, but they show that companies concentrate on what their real field of competence is. In our case it's clearly food and nutrition, and in Novartis' case it's pharmaceuticals," said Perroud in a conference call on the deal.

Nestle said it would use the proceeds from the sale of Alcon shares to reduce debt, buy back more of its own shares and for acquisitions in line with its focus on food, diet and lifestyle products.

Daniel Vasella, CEO and chairman of Novartis, said his company would borrow $5.5 billion (€3.5 billion) to finance the deal, the remainder coming out of its own reserves.

"Eye care will continue to grow dynamically as there is a growing unmet medical need driven primarily by the world's aging population," Vasella said.

He said the purchase is part of a Novartis strategy to focus on high-growth segments of the healthcare market.

Rick Wise, med-tech analyst for Bear Stearns, wrote in a research note that Novartis' Ciba Vision (Duluth, Georgia) group will gain Alcon's market-leading multipurpose solution franchise. The strength of Alcon's OptiFree product line, he said, "will accelerate Ciba's contact lens growth which has lagged the market for the past two years. The strength of OptiFree should accelerate sales of Ciba's contact lens franchise, especially O2Optix."

The agreement provides for the expansion of the Alcon board from eight to 10 members, one of the added members designated by Nestle, one designated by Novartis. Nominees for these seats are James Singh, currently Nestle's executive VP and CFO, and Vasella.

Alcon had sales of about $5.6 billion in 2007.

In the other billion-dollar deal, KCI will acquire LifeCell by paying about $51 a share, the offer representing an 18% premium over the closing price of LifeCell's stock on April 4 and a 26% premium over the 90-day volume weighted average trading price.

The boards of both companies have approved the transaction.

In a press conference, the two companies said the combination will generate '08 revenue of about $2 billion and employ more than 7,000.

Catherine Burzik, CEO of KCI, said the combination advances "our strategy to increase KCI's presence in the operating room and will leverage our broad global market reach to drive future growth of LifeCell's products.... LifeCell will provide a new dimension to KCI's growth capabilities, including an important step in the diversification of our revenue and growth profile."

LifeCell's flagship product AlloDerm, which is used to repair damaged tissue in hernias and breast reconstruction, had $167 million in revenue last year. The company won U.S. approval last June for its next-generation regenerative product, Strattice.

Burzik said KCI's advanced wound care platform has been its primary growth driver and this acquisition represents the third major product line for the company going forward.

"The area of biosurgicals and tissue regeneration is of keen interest to us," Burzik said.

KCI said it continues to focus on the operating room and the acute care setting both with its current product offerings and with the development of new products from its negative pressure technology platform.

Because LifeCell's products are primarily used in these care settings, KCI said that the acquisition accelerates its strategy and provides additional growth opportunities for the combined company's advanced products.

With revenue growth at 35% in 2007, LifeCell would have represented about 11% of combined revenue and provides "a meaningful enhancement to the growth trajectory that currently exists for KCI's negative pressure technology platform," the company said.

LifeCell will operate as a new global biosurgery division within KCI. Paul Thomas will continue to lead the business as president of the division and will join KCI's executive committee. LifeCell's management team and corporate headquarters will continue to be located in Branchburg.

KCI said the deal, excluding amortization, would initially reduce EPS but boost EPS in 2009 and "significantly" help results in 2010 and beyond.

Both companies' boards unanimously approved the transaction, the companies said.

KCI said it plans to use cash on hand and proceeds from a fully underwritten debt financing from Bank of America and JPMorgan Chase Bank for the acquisition. J.P. Morgan Securities acted as financial advisor to KCI and Merrill Lynch & Co. acted as financial advisor to LifeCell. Skadden, Arps, Slate, Meagher & Flom and Lowenstein Sandler served as legal advisors to KCI and LifeCell, respectively.