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MERGERS & ACQUISITIONS

Valeant to Acquire Bausch + Lomb for $8.7 Billion

Under terms of the agreement, Valeant will pay about $4.5 billion to an investor group led by Bausch + Lomb owner Warburg Pincus LLC. The remaining $4.2 billion will be used to repay Bausch + Lomb's outstanding debt. Valeant expects to achieve at least $800 million in annual cost savings by end of 2014. This will come from job cuts, and savings in purchasing and legal costs, the company announced.

Bausch + Lomb will retain its name and become a division of Valeant, while Valeant’s existing ophthalmology businesses will be integrated into the eye care division. 

Bausch + Lomb is expecting revenue from its three business segment – pharmaceuticals, vision care, and surgical - of $3.3 billion this year. That figure represents 9% growth from 2012, according to figures presented by Valeant following the announcement of the deal. 

In a statement, Valeant said that integration plans are already underway, however other than a few high-level appointments, no final decisions regarding facilities or personnel have been made. Brent Saunders, chief executive officer of Bausch + Lomb, will join Valeant in an advisory role through the transition. Fred Hassan, chairman of Bausch + Lomb's board of directors, will join Valeant's board following the close of the deal.

During the investor conference call following the sale, J. Michael Pearson, CEO and Chairman of Valeant, addressed a question about whether Valeant is committed to keeping Bausch + Lomb’s surgical and consumer business long-term.

“We are committed to consumer and devices as much as any of our other businesses. We’ve always stated that we’ll never fall in love with any of our assets. If any of our assets are worth more to someone else, we will divest them if its in shareholders’ best interest. But we are committed to all three platforms now,” Mr. Pearson said. 

Valeant, which has a market cap of about $26 billion, will focus on integrating its new acquisitions for the rest of 2013, Mr. Pearson said, but will still look for smaller buys that fit its dermatology and opthalmology businesses. In the conference call, Mr. Pearson also addressed the competitive ophthalmic landscape and how he believes Valeant can add value to Bausch + Lomb. 

“It’s one of the reasons we think having all three platforms [pharmaceuticals, vision care, and surgical] is an advantage for us, but while there’s some large competitors in there, there’s not a lot of them, and it’s a pretty disciplined market in terms of price, so that’s a plus. We’re going to have to be nimble, we’re going to have to stay focused, but Bausch and Lomb has competed quite successfully for 160 years against these larger competitors and the fact that we can provide more capital to Bausch and Lomb than they have been able to commit being part of private equity in the last five years gives us some sense of optimism that we can both continue to compete and perhaps even improve our position going forward,” Mr. Pearson said. 

Earlier this year, Warburg Pincus hired Goldman Sachs to explore the option of selling the eye care giant. When it could not find a suitable deal, Warburg explored an initial public offering before accepting the Valeant offer. Warburg purchased Bausch + Lomb in 2007 for about $4.5 billion.

The transaction was unanimously approved by the boards of director of both companies and is subject to customary closing conditions and regulatory approvals. The deal is expected to close in the third quarter of 2013.

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