Bausch & Lomb Nears Deal to Sell Itself to Valeant for $9 Billion
Bausch & Lomb Nears Deal to Sell Itself to Valeant for $9 Billion
Bausch & Lomb is nearing a deal to sell itself to drug maker Valeant Pharmaceuticals International for about $9 billion, a surprise move that highlights a resurgence in private-equity deal making after years spent in the doldrums.
Bausch & Lomb, which is owned by private-equity firms led by Warburg Pincus LLC, could strike a deal to be sold to Valeant next week, the people said. The deal isn't done yet and could still fall apart, one of the people cautioned. Should that happen, Warburg and Bausch & Lomb could proceed with an initial public offering of stock in the eye-care company that had been planned.
But should a takeover deal be struck as planned, it would be a victory for Warburg Pincus, which in 2007 took Bausch & Lomb private in a $3.7 billion leveraged buyout. Like its rival private-equity firms, New York-based Warburg has seized on a booming stock market and strong demand for debt—which allows buyers of their assets to borrow cheaply—to cash out of investments at a blistering pace.
Private-equity firms have made $95 billion this year by selling companies and placing shares in the equity markets, according to research firm Dealogic. About half of that money has been made selling stock in companies to public investors at a record pace, while the remainder has come from selling whole companies to other buyout firms or corporations—a route that private-equity firms prefer as it is generally more lucrative and gets them out of investments much faster than stock offerings.
Bausch & Lomb, a 159-year-old maker of eye-care products including contact lenses, instruments used in surgeries and drugs treating infections, was taken private in the waning days of the buyout frenzy. That boom saw companies go private in numbers and sizes that had never been seen before. The burst of activity was also fueled by cheap debt and a robust stock market—and it came to a halt with the onset of the global financial crisis in late 2007 and 2008.
Some of the debt-fueled deals made in those days have been disastrous. The investment firms that in 2007 acquired Energy Future Holdings for about $32 billion in the largest leveraged buyout in history are now preparing the Texas utility for bankruptcy. And the owners of First Data Corp., a payment processor subject to a $26.3 billion 2007 buyout, have written the deal down to 70 cents on the dollar.
But not all the deals struck then have gone sour. Those involving hospital operator HCA Inc., HCA +3.65% pharmacy chain Alliance Boots PLC and retailer Dollar General Corp. DG +0.11% have made private-equity investors billions. Much of the money made on those deals has come in recent months as the markets enabled firms to finally cash in on the long-held investments.
Private-equity giant KKR KKR +6.51% & Co. told investors this week that it expects to double the $16.3 billion invested in its boom-era fund, which was invested in a number of these deals.
A deal with Valeant would cap a turnaround for Bausch & Lomb. In the mid-2000s, damaging recalls and accounting missteps cost the Rochester, N.Y., company tens of millions of dollars in sales and exposed it to costly lawsuits.
Warburg's attempts to quickly right the company after it was taken private took a hit when the economy soured.
But in 2010 Warburg recruited Fred Hassan, a longtime pharmaceutical executive with a history of leading turnarounds and arranging megadeals, to join the firm as a partner and become chairman of Bausch & Lomb. Before joining Warburg, Mr. Hassan led drug maker Schering-Plough Corp. and merged it with Merck & Co. Earlier he helped combine Pharmacia & Upjohn Inc. with Monsanto Corp. and then sold the resulting company to Pfizer Inc.
It is unclear exactly how much Warburg and its minority partner on the deal, buyout shop Welsh, Carson, Anderson & Stowe, would make on a sale—for reasons that include uncertainty around how much assumed debt would be included. Nonetheless, the return on a $9 billion sale would be multiples of the $1.3 billion or so the firms put into the deal, securities filings show.
The return was plumped by a $772 million dividend Bausch & Lomb paid its owners in March, according to a securities filing associated with the planned IPO. Bausch borrowed $800 million to fund the payout. Warburg owns about 87% of the company, the filing shows, with Bausch executives and Welsh Carson owning the remainder.
In recent weeks, Warburg has sold stakes in India's Alliance Tire Group, lender Webster Financial Corp. WBS +1.02% and bank-data processor Fidelity National Information Services Inc. FIS +0.66% Along with partner TPG, Warburg is exploring a potential exit of its 2005 buyout of luxury retailer Neiman Marcus Group, according to people familiar with the matter.
All told, Warburg paid out $3 billion to its investors during the first three months of this year to go along with $6.2 billion it distributed last year, according to the firm. Those returns helped Warburg lure investors to a $11.2 billion fund it finished raising earlier this month, the largest private-equity pool raised since the financial crisis.
At the beginning of the year, Warburg had entertained takeover offers for Bausch & Lomb, but no deal was struck. People familiar with the matter said then that suitors balked at the asking price of at least $10 billion. The plan had recently been for the IPO to be launched this summer.
A number of pharmaceutical companies are weighing whether to strike deals to reposition themselves as the industry evolves, bankers and advisers say. The sector is seen by deal makers as a bright spot in an otherwise sleepy M&A market.
Valeant, a generic-drug maker, has been on the prowl for deals amid a recent flurry of matchmaking among medium-size industry players. Late last month, it came close to agreeing to combine with rival Actavis Inc. before those talks fell apart, according to people familiar with the matter. Actavis, with a market value of some $16 billion, agreed Monday to buy drug maker Warner Chilcott for roughly $5 billion.
Valeant, which is based in Montreal, makes branded and generic drugs as well as over-the-counter products, and had $3.6 billion of revenue last year. Shares of Valeant, which trade in New York and Toronto, rose sharply Friday, closing up 13% at $84.47 on the New York Stock Exchange after The Wall Street Journal reported the talks. That gives the company a market value of about $26 billion.
Valeant is known as an aggressive acquirer—announcing more than 20 deals since 2011—which helps explain how it pivoted in less than a month from discussing a deal with Actavis to nearing one with Bausch & Lomb.
Among its biggest deals was a combination with Biovail Corp. in 2010 and the $2.6 billion takeover of Medicis Pharmaceutical Corp. in 2012. That acquisition bolstered its position in skin-care products, a focus for Valeant.
Chief Executive J. Michael Pearson, a former McKinsey & Co. consultant who took Valeant's helm in 2008, has sought to avoid risky drug research and direct competition with big pharmaceutical companies.
The company has increased sales by discarding poorly performing businesses and buying expanding ones, especially those with already approved products and those that compete in rapidly growing emerging markets.
Valeant has also been trying to build an ophthalmology business. Last year, the company agreed to buy Eyetech Inc., a privately owned biotech concern selling a treatment in the U.S. called Macugen for a form of blindness. Valeant also announced a deal to buy an eye therapy known as Visudyne.
Valeant was founded as International Chemical and Nuclear Corp in 1960 by Milan Panic, a former prime minister of Yugoslavia. Mr. Panic resigned as the company's chairman in 2002. In 2006, hedge fund ValueAct Capital began investing in the company, which had been renamed Valeant, after a drug candidate failed testing and the shares plunged. J. Michael Pearson took the helm of Valeant in 2008 and set it on its current course.
Source: WSJ
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