Bausch & Lomb Eyes A Bidding War

With more than 300 product-liability lawsuits pending against it, Bausch & Lomb doesn’t seem like the ideal takeover candidate. But it could be the center of a bidding war, if Advanced Medical Optics, a rival eye care product company, follows through on a potential offer.

On Thursday, Advanced Medical announced that it may trump Warburg Pincus’ $65-a-share offer with a higher bid.

“We believe that the current transaction with Warburg Pincus undervalues Bausch & Lomb,and we plan to enter the go-shop process with the intention of exploring a superior offer for the company,” the company said in a statement.

Shares of Bausch & Lomb climbed 5.7%, or $3.76, to close at $70.21, on Thursday, while Advanced Medical Optics slipped 3.0%, or $1.26, to $41.18.

But a Bausch & Lomb acquisition would be tricky for Advanced Medical Optics, which is a leader in refractive surgery and cataract-surgery devices, because of antitrust issues. There are there major areas where the two companies businesses overlap: cataract devices, refractive surgery and lens care solution, according to Robert W. Baird analyst, Jeff Johnson. The merger would effectively give Advanced Medical a monopoly in the cataract market, because both companies are major players in the sector, he said.

However, possible regulatory roadblocks may not discourage Advanced Medical, which has been particularly aggressive in the last two years, snapping up Visx and IntraLase, two major laser eye-device makers. For Advanced Medical, a Bausch & Lomb takeover would give it a major footprint in the lens-solution market, where it has played a distant third fiddle.

Of course, acquiring the embattled company’s lens solution business doesn’t come without its liabilities. In 2006, Bausch & Lomb was forced to recall ReNu and MoistureLoc contact lens solutions line after federal regulators linked the products to a dangerous eye fungus infection. With product-liability lawsuits looming and weak sales, the company is still struggling to emerge from its recall crisis.

So who will win, the New York-based private equity firm or the strategic buyer? Perhaps neither— with so many competitors and potential private-equity suitors on the landscape, a new bidder might crop up. Ultimately, it will come down to who can offer the highest cash offer, Johnson said.

Given Advanced Medical’s aggressive posture, a bidding war seems inevitable. According to analysts, Warburg Pincus would be willing to spar: “The fund has deep pockets and they have been extremely successful in the healthcare space in the past. There’s room for negotiation, so who knows what they’re endpoint is,” Johnson said.

SOURCE: FORBES.COM