Bausch & Lomb to be acquired by Warburg Pincus for $3.67 billion
ROCHESTER, N.Y. (AP) – Bausch & Lomb Inc., struggling to recover from the global recall of a contact lens cleaner blamed for severe eye infections, agreed to a $3.67 billion buyout by Warburg Pincus, though Wall Street seemed to see potential for a higher price tag. The 154-year-old eye-care company’s stock rose 9 percent after Wednesday’s announcement, exceeding the amount Warburg agreed to pay, a sign investors may expect a rival bid.
Warburg said it would pay stockholders $65 a share, which represents a 26 percent premium to the average price of the stock over the 30-day period when rumors began circulating about a possible buyout. The New York-based buyout and venture capital firm also would take on about $830 million of debt from Bausch.
Over the last 18 months, Bausch & Lomb has been plagued by product recalls, accounting woes and delayed financial reports. Three weeks ago, it finally revealed that year-over-year sales fell 2.6 percent to $2.9 billion in 2006, dragged down by a 21 percent slide in lens care revenues.
The maker of contact lenses, ophthalmic drugs and vision-correction surgical instruments traces its roots to 1853, when German immigrant John Jacob Bausch set up an optical goods shop in Rochester and partnered with Henry Lomb, a friend who loaned him $60.
The company went on to develop the first optical-quality glass made in America, groundbreaking sunglasses for the military in World War I, and camera lenses used to capture the first satellite pictures of the moon. It introduced the world’s first soft contact lenses in 1971. It now employs about 13,000 people.
Last May, it permanently withdrew its new-formula ReNu with MoistureLoc multipurpose contact lens cleaner from markets around the world. Federal regulators called the $100 million-a-year product the “potential root cause” of an outbreak of potentially blinding Fusarium keratitis infections.
The recall appeared to be the key factor in its decision to be acquired and go private, analysts said.
“If they remained a public player, that would have been an overhang on the stock over the next year or two,” Johnson said.
“It would have put them at risk of some negative headlines. So it’s not surprising to me that private equity would come along, take these guys out of the public spotlight and allow them to kind of get their house in order and, who knows, a couple of years from now, come back to the public market a healthier, stronger company.”
Those sentiments were echoed by George Conboy of Brighton Securities in suburban Rochester.
“It’s entirely plausible that you could see a transaction again in a few years,” said Conboy. “If market conditions are changed, Bausch & Lomb is strengthened and more profitable, they might take it public again or they might sell it to a large competitor such as a Johnson & Johnson or a Ciba or maybe merge it.”
The company does not expect to relocate its headquarters away from Rochester.
“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,” its chief executive, Ron Zarrella said in a statement.
“I think they’re worth somewhere right in that low-to-mid-$60 range,” said analyst Jeff Johnson of Robert W. Baird & Co. in Milwaukee. “I’d be hard-pressed to see a significantly higher takeout price.”
Warburg Pincus has invested $26 billion in 570 companies since 1971, including $4.8 billion in health-care businesses. Along with Texas Pacific Group, it acquired luxury retailer Neiman Marcus for $5.1 billion in late 2005.
Conboy foresees “a close focus on financials and careful management with oversight from the investors, but I don’t expect to see an awful lot of management change.” Despite the recall, Warburg Pincus would have “a very strong franchise in the Bausch & Lomb name – the public knows it means eye care, contact lenses, lens solutions.”
Lawyers expect several hundred people will seek damages for MoistureLoc-linked infections in trials beginning as early as this summer. A cluster of the infections surfaced in Asia in late fall 2005, and then an unusual number of victims began showing up in U.S. eye centers that winter.
Of the 180 infection victims confirmed so far in 35 states, 59 needed cornea transplants to try to restore their vision, according to the Centers for Disease Control and Prevention in Atlanta.
“It’s very life-altering, and I’ve got a long road ahead of me,” said Gina Macchia, 50, who underwent eye-saving, cornea-transplant surgery after using MoistureLoc.
More recently, Bausch & Lomb recalled about 1.5 million bottles of ReNu MultiPlus solution in March due to trace amounts of iron that could cause the cleaner to lose effectiveness earlier than normal.
On the accounting front, the company has been working to restate past financial statements following revelations in late 2005 and early 2006 of improper bookkeeping in Asia and Brazil.
Bausch & Lomb said it can solicit superior proposals from third parties during the next 50 calendar days. Should it find and accept such an offer, it would be obligated to pay a $40 million break-up fee to affiliates of Warburg Pincus.
A committee of Bausch & Lomb’s independent board members recommended that shareholders vote for the deal.
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