Bausch & Lomb to merge with private equity firm

Rochester, NY-After more than 150 years in business (69 of them as a public company), Bausch & Lomb has accepted an offer to merge with Warburg Pincus, a private equity firm.

Under terms of the $4.5 billion acquisition, announced May 16, affiliates of Warburg Pincus will acquire all of the outstanding shares of Bausch & Lomb common stock for $65 per share. The cash deal represents a premium of about 26% over the volume-weighted average share price for the 30 days before press reports of rumors regarding a potential acquisition of the company.

“As a private company, Bausch & Lomb will have greater flexibility to focus on our long-term strategic direction to be a global leader in providing innovative and technologically advanced eye-health products to eye-care professionals and consumers,” said Ronald L. Zarrella, chairman and chief executive officer of Bausch & Lomb, in a prepared statement. “Warburg Pincus understands our industry and our business well, and [it] will be a tremendous asset as we build upon our leadership position and continue to implement our strategic plan to deliver enhanced value for our customers worldwide.”

Andrea Salas, a spokeswoman for Bausch & Lomb, told Ophthalmology Times that the company could not comment beyond this statement for now. Under the merger agreement, Bausch & Lomb has until July 5 to solicit proposals from third parties.

To that end, Advanced Medical Optics (AMO) issued the following statement May 24 in response to media reports regarding its interest in entering Bausch & Lomb’s “go-shop” process:

“We believe it is only logical to explore this opportunity given the highly complementary nature of our two businesses. Consideration of this potential transaction is consistent with our existing strategy to provide a full range of products that address vision-care needs of people of all ages. We believe that the current transaction with Warburg Pincus undervalues Bausch & Lomb, and we plan to enter the go-shop process with the intention of exploring a superior offer for the company. Of course, we will only proceed with a transaction if after conducting thorough due diligence, our board of directors determines it is in the best interest of AMO stockholders.”

Prior to the announcement by AMO, analysts were speculating that a third-party solicitation would be unlikely.

“I don’t think, from a strategic standpoint, there’s an entity that wants to go head-to-head with a private equity reserve,” said Christopher C. Cooley, managing director and senior analyst with FTN Midwest Securities Corp. in Cleveland.

Although rumors had surfaced about Pfizer showing interest, Cooley said that arrangement would not make sense given Pfizer’s 2004 divestiture of the surgical ophthalmology unit it acquired with Pharmacia, he added.

Jeff D. Johnson, OD, senior medical technology analyst with Milwaukee-based R.W. Baird, said that public companies might not want to take on Bausch & Lomb’s challenges at this time, but speculated that another private concern might take a look.

Fusarium frustration

Bausch & Lomb, which employs 1,500 at its headquarters, once commanded 43% of the branded multipurpose, contact lens-solution market, according to the company.

In spring 2006, the company began acknowledging reports of a rise in the number of Fusarium keratitis cases associated with users of its ReNu with MoistureLoc contact lens solution.

After a subsequent investigation by the company and the Centers for Disease Control and Prevention, Bausch & Lomb recalled all lots of the product, discontinued its sale, and underwent an investigation of the product’s formulation (See the May 15, June 1, June 15, July 1, and Sept. 15 issues of Ophthalmology Times). As of June 30, 2006, 164 cases were confirmed in 33 states and one U.S. territory, and corneal transplants were required or planned in 55 patients.

Bausch & Lomb experienced falling stock prices as investigators scurried to determine the cause of the rare infection’s outbreak among contact-lens wearers.The company’s stock prices declined from around $80 before the outbreak to about $41 when Bausch & Lomb recalled the MoistureLoc formula in May 2006.

Stock prices, however, had started to rebound despite the March 6, 2007 limited voluntary recall by Bausch & Lomb of 12 lots of its ReNu MultiPlus contact lens-care solution that contained an elevated level of trace iron (See Ophthalmology Times, April 1, 2007 issue, Page 6).The fallout from the ReNu with MoistureLoc recall resulted in a $106 million annual reduction in related product sales, Cooley estimated-not to mention 344 pending lawsuits, Johnson noted.

“It was an amalgamation of factors,” Cooley said of Bausch & Lomb’s fall from grace.

“Clearly, the MoistureLoc recall might be the proverbial straw that broke the camel’s back,” he said.

Even if the deal with Warburg Pincus closes as planned, analysts said they do not expect to see a lot of changes.

Johnson declined to speculate on whether Chairman and CEO Zarrella, would remain with the company. Warburg Pincus spokeswoman Julie Johnson Staples and Bausch & Lomb spokeswoman Salas both declined further comment with Ophthalmology Times.

“From a competitive dynamic, I really don’t think there’s a lot Warburg can do to change things,” Cooley said.

Johnson said Warburg Pincus has sometimes taken an active role and other times acted as silent partner. But one thing is clear: Bausch & Lomb is not going to fade away, he said.

“Warburg Pincus is paying $4.5 billion for the Bausch & Lomb name,” Johnson said. “You’re not going to see that go away; [there’s] too much brand equity.”OT