Chicago: Bausch & Lomb Inc., the eye-products maker rocked last year when its contact-lens solution was recalled, agreed to be bought by private equity firm Warburg Pincus for $3.67 billion in cash.
Bausch & Lomb’s shares jumped as much as 10%, reaching their highest value since before the recall, after the Rochester, New York-based company said it will continue to seek higher offers. Warburg Pincus will pay $65 a share and assume $830 million in debt, the companies said today in a statement.
Bausch & Lomb recalled the lens cleaner ReNu with MoistureLoc in 2006, after the product was linked to a potentially blinding eye infection. The action resulted in charges of $25 million, as well as $19 million in lost revenue from returns and rebates. The company has also been restating its financial results since 2000 because of accounting misconduct and has delayed filings with U.S. regulators.
“Going private is the best outcome” for Bausch & Lomb, which is facing 344 lawsuits from the MoistureLoc recall, said Jeff Johnson, an analyst at Robert W. Baird & Co. in Milwaukee, in a telephone interview today. While Johnson didn’t speculate on who else might bid, he said he doesn’t “foresee a public company wanting to take on the headline risk and, to a certain extent, some of the financial risk.”
Should Bausch & Lomb agree to accept a higher offer within 50 calendar days, it will pay Warburg a $40 million breakup fee, according to the agreement.
Bausch & Lomb’s shares fell $4.85, or 7.9 percent, to $66.35 at 10:43 a.m. in New York Stock Exchange composite trading. The shares touched $67.71 earlier, the highest value since March 20, 2006, before its ReNu was recalled. The purchase amount exceeds yesterday’s closing price by 5.7 percent.
“It’s a fair price once you look at the $830 million in debt and factor in liability cases and settlement expenses,” Baird’s Johnson said.
After the deal was announced, Standard & Poor’s cut its rating on Bausch & Lomb to junk and placed the company on a credit watch The credit rating was lowered to ’BB+’ from ’BBB.’
The agreement comes a week after Bausch & Lomb reported that its first-quarter net income surged 62 percent as its steroid eye drops for treating inflamed eyes, ocular vitamins and Retiser drug delivery implants led an increase in sales.
“There’s a lot of value in the brand name Bausch & Lomb,” Johnson said. “You’re already seeing some recovery in a number of their product lines.”
Morgan Stanley is giving financial advice to Bausch & Lomb’s board. Wachtell Lipton Rosen & Katz is legal counsel.
Bank of America, Citigroup Inc., Credit Suisse and JPMorgan Chase & Co. served as financial advisers to New York-based Warburg Pincus. Cleary Gottlieb Steen & Hamilton LLP are acting as legal adviser.