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Valeant Pharma to Buy Bausch+Lomb

Zacks Equity Research

In a bid to strengthen its ophthalmology portfolio, Valeant Pharmaceuticals International, Inc. (VRX) entered into a definitive agreement to acquire eye-care company, Bausch + Lomb Holdings Incorporated, for $8.7 billion in cash.

In order to fund the acquisition, Valeant Pharma will raise approximately $1.5 - $2.0 billion of new equity. The remaining transaction value will be financed through debt.

We remind investors that Bausch + Lomb was a public company trading on New York Stock Exchange prior to Oct 2007, when an investor group headed by Warburg Pincus led the acquisition of Bausch + Lomb.

Of the total consideration of $8.7 billion, Valeant Pharma will use approximately $4.2 billion to repay Bausch + Lomb's outstanding debt while approximately $4.5 billion will be paid to the investor group, headed by Pincus.

With a history of 160 years, Bausch + Lomb currently has recognized prescription and OTC brands such as Besivance, Lotemax, Ocuvite and PreserVision, vision care brands such as Biotrue ONEday, PureVision, renu and Boston. The company also has surgical brands such as enVista, Storz, Stellaris and VICTUS under its extensive portfolio.

Bausch + Lomb currently projects revenues of approximately $3.3 billion in 2013. The transaction is expected to close by the third quarter of 2013 subject to regulatory approvals. The acquisition is expected to generate annual cost savings of at least $800 million by the end of 2014 and be immediately accretive to Valeant Pharma’s bottom-line on a cash basis.

Although dermatology is the key focus area for Valeant Pharma, we note that the company has a few ophthalmology products in its kitty namely Timoptic, Lacrisert, Macugen and Visudyne.

Hence, Valeant Pharma’s existing ophthalmology business will be integrated into the Bausch + Lomb’s businesses and the latter will retain its name and operate as a division of Valeant Pharma. Valeant Pharma currently estimates revenues of more than $3.5 billion in 2013 for this division.

We believe the acquisition of Bausch + Lomb will significantly strengthen Valeant Pharma’s ophthalmology business given the former’s leading portfolio of eye health products.

The acquisition should also enable Valeant Pharma to penetrate into the growing eye health market fueled by an aging patient population, an increased rate of diabetes, and increasing demand from the emerging markets. We note that Novartis (NVS) is a leading player in eye care products and technologies with operations in 75 countries through its Alcon Division.

The news of the impending acquisition had a positive impact on Valeant Pharma’s stock price.

We note that Valeant Pharma has been active on the acquisition front lately.

In Apr 2013, Valeant Pharma acquired Obagi Medical Products for $24.00 per share following a bidding war with Merz Pharma Group.

In Dec 2012, Valeant acquired the entire outstanding common stock of Medicis Pharmaceutical Corporation for approximately $2.6 billion.

Valeant Pharma currently carries a Zacks Rank #3 (Hold). Right now, Salix Pharmaceuticals (SLXP) and Santarus, Inc. (SNTS) look attractive with a Zacks Rank #1 (Strong Buy).

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