Wednesday, May 16, 2007

Privacy Beckons For Bausch & Lomb (Forbes)

Joshua Lipton

The public eye is a harsh place, harsher still when a company makes a mistake. So Bausch & Lomb, the maker of eye-care products and recently a faulty contact-lens solution, is planning to step out of the public market and into the arms of private-equity firm Warburg Pincus, the company announced on Wednesday.

Warburg is offering $65 a share for Bausch & Lomb, a total of $3.7 billion in cash, and assuming about $830 million of debt, for a total value of $4.5 billion. If somebody thinks the eyecare company is worth more, they're welcome to it. Warburg is entitled a modest break-up fee of just $40 million, less than 1% of the purchase price.

Investors seem to think a better offer is coming. In morning trading, shares of Bausch & Lomb (nyse: BOL - news - people ) quickly kited up 8.8%, or $5.40, to a new 52-week high of $66.90. That's above the $65 bid, but the company traded in the $80s in 2005 and 2006, before its well-publicized contact-lens solution problems.

"Investors are saying that they expect a higher deal," noted Jeff Johnson, senior medical technology analyst at Robert W. Baird. "I think $65 does make sense but private equity seems willing to accept lower returns and pay more."

Bausch & Lomb is still dealing with the financial and legal mess created after a fungus-related mishap undercut its 2006 results. The company's ReNu with MoistureLoc contact lens solution was linked with a greater incidence of a potentially blinding eye fungus. (See: "More Recalls Ahead For Bausch & Lomb?")

The product may no longer be on the shelves but that didn't stop the lawyers from circling the company. Johnson said there are now more than 300 product-liability lawsuits pending against Bausch & Lomb.

It makes sense, given those litigious headaches, that a private equity firm would be the one swooping in to take over the company, said Johnson. "It would be a surprise to see a public company take on that risk," the analyst contended. "These are issues better handled out of the spotlight. Then the company can come back when the issues are all resolved."

Despite the headline-grabbing news plaguing Bausch & Lomb over the past year, it remains the most well-recognized eye care company in the world, said Johnson.

"They have significant brand equity. Some consumers do remember that Bausch & Lomb was associated with a scare last summer. But there a lot of consumers that have forgotten about that or decided not to hold it against them."

He added, "It's the costs associated with litigation and accounting that concerns the public. They could use a couple years to get these issues in order."

The Associated Press contributed to this article.

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