Eye-care company Bausch & Lomb, still dealing with widespread product recalls that have hurt its sales and delayed financial reports, said it agreed to be acquired by private equity firm Warburg Pincus for about $3.67 billion.
Bausch & Lomb's stock price immediately jumped above the $65-a-share offer from Warburg Pincus -- touching their highest level in more than a year -- suggesting investors may expect a higher bid. The maker of contact lenses and ReNu contact lens solution, among other eye-care products, has 50 days to seek a higher bid.
"The options market is saying the stock is worth more and the takeover bid should be closer to $69 or $70 a share," said Paul Foster, an options analyst at theflyonthewall.com, who noted recent options activity reflected expectations of a bid.
The offer, which also calls for the private equity firm to assume $830 million in debt, is only a 5.7% premium to where Bausch & Lomb shares closed on Tuesday. But its shares have been on a sharp ascent for several weeks -- up about 25% since mid-March before today's rally -- due to rumors that it would be a target of a leveraged buyout.
The deal to take over the company founded in 1853 is "pretty fair," according to Robert W. Baird analyst Jeffrey Johnson.
"If I were a shareholder here, I would not be expecting much upside from the $67," Johnson said of the shares.
Warburg Pincus has offered to pay nearly 28 times estimated 2007 earnings per share for the company, and 9.5 times estimated 2007 earnings before interest, taxes, depreciation and amortization, based on data from Reuters Estimates.
The company, which conducted a worldwide recall of its popular contact lens solution last year and was still recalling some product this year, has been struggling to overcome accounting troubles and product liability.
By going private, Bausch will be able to address its issues away from the investor spotlight, Johnson said. Those issues include dealing with product liability lawsuits and getting their accounting in order as the company has not yet become current in its SEC filings, Johnson said.
Jack Trout, president of Trout and Partners, an advertising strategy firm, said Bausch & Lomb brands have been tarnished after the recall, but can be restored.
"The biggest problem in marketing today is two words - Wall Street," Trout said.
Wall Street, he added, will often force companies to do things that they shouldn't do to keep growing.
"If they can pull back and regroup - with Wall Street off their backs -- they might be able to do a better job of marketing themselves," Trout said.
The Warburg Pincus offer includes the right for Bausch & Lomb to solicit superior offers during the next 50 days. If a better deal is reached during that time, it will pay a $40 million break-up fee to Warburg Pincus.
Shares of other eye-care companies, including Advanced Medicaland Cooper Companies were also trading higher.