AMO Bids $75/Share for Bausch & Lomb, Trumping Warburg Pincus’ Offer

Bausch & Lomb Inc., a maker of eye- care products, said rival Advanced Medical Optics Inc. offered to buy the company for about $4.3 billion, or $75 a share, topping a bid from Warburg Pincus LLC by 15 percent. Bausch & Lomb agreed in May to sell itself to the private- equity firm for $65 a share, or $3.67 billion, while giving other prospective suitors until today to submit their own bids. Under Advanced Medical’s offer, Bausch & Lomb investors would receive $45 a share in cash and $30 in stock, Bausch & Lomb said today in a statement. Advanced Medical’s bid, which comes seven weeks after the company disclosed its interest in pursuing a deal, leaves Bausch & Lomb to choose between a higher price that depends in part on the value of a rival’s shares, and Warburg’s lower, all-cash offer. Both Advanced Medical and Bausch & Lomb have grappled with costly product recalls in the past year. Bausch & Lomb said today its board concluded that Advanced Medical’s offer was good enough to warrant further talks. The directors also reaffirmed their recommendation to proceed with the Warburg agreement. While Advanced Medical’s bid is higher, it comes with several hurdles Warburg’s bid can avoid: For one, the merger of two companies with many similar products could draw antitrust scrutiny from regulators. Second, Advanced Medical may need to seek approval of the deal from its own shareholders before it can issue the stock used in the bid. Bausch & Lomb said it would study these issues. KKR, Goldman Kohlberg Kravis Roberts & Co., another buyout firm, and Goldman Sachs Group Inc., Advanced Medical’s financial adviser, may join the company’s bid, two people familiar with the negotiations said. The additional investors may free the group to reduce its dependence on Advanced Medical stock. In Advanced Medical’s statement, Chairman Jim Mazzo said a combination with his company would begin adding to earnings after two years. “Through a focus on integrating the best of both businesses, as well as the sale of some non-core assets, our goal is to create a stronger, more competitive combined company,” Mazzo said. Bausch & Lomb recalled a contact lens solution, Renu with MoistureLoc, in 2006 after it was tied to a rare fungal disease. Buying the Rochester, New York-based company when it’s recovering from the recall would help Advanced Medical expand in the eye- care market and eliminate a 154-year-old rival that has four times the number of employees and a well-known brand. `Highly Complementary’ “We believe it is only logical to explore this opportunity given the highly complementary nature of our two businesses,” Advanced Medical said on May 24. Five days later, Advanced Medical had a product recall of its own, triggering a 14 percent drop in its stock and casting doubt that the Santa Ana, California-based company would follow through with an offer for Bausch & Lomb. Steve Chesterman, a spokesman for Advanced Medical, didn’t immediately return a phone call and e-mail message seeking comment. Julie Johnson Staples, a spokeswoman with Warburg Pincus, declined to comment. Shares of both companies were halted just before 3 p.m. New York time pending an announcement. At the time, Bausch & Lomb had risen $3.36, or 4.9 percent, to $72 in New York Stock Exchange composite trading. Advanced Medical’s shares rose 42 cents, or 1.2 percent, to $35.89. `Significant Potential’ Bausch & Lomb must pay Warburg Pincus a $40 million breakup fee if it accepts a higher offer, according to the agreement. Warburg Pincus said it wanted Bausch & Lomb because of its “significant potential.” SAC Capital Advisors LLC, based in Stamford, Connecticut, almost doubled its stake in Bausch & Lomb to 1.9 percent from 1 percent March 30, according to a filing with the U.S. Securities and Exchange Commission. Advanced Medical, which vies with Bausch & Lomb for sales of contact lenses and cleaners, also makes medical devices for the eye, including products for cataract surgery and implants as well as laser vision correction. In 2006, Bausch & Lomb had 13,000 employees worldwide and $2.3 billion in sales. Advanced Medical had 3,300 employees at the end of last year and $998 million in sales, according to its annual report. In March, Bausch & Lomb recalled more than 1 million bottles of ReNu MultiPlus solution after excess levels of iron were found in it. There were no reports of serious harm to users. Potentially Blinding The company recalled its ReNu with MoistureLoc contact lens solution in May 2006 after some users developed infections with the fusarium fungus. The potentially blinding eye condition first appeared in Singapore and Hong Kong and then spread to the U.S., where more than 150 people were affected. Advanced Medical recalled its Complete MoisturePlus multipurpose eye solution in May after at least 21 users were infected with a waterborne organism that can lead to blindness, and withdrew its 2007 profit forecast. Bausch & Lomb began in 1853 in Rochester as a shop specializing in optical goods. Bausch & Lomb held patents for microscopes and binoculars and introduced soft contact lenses in 1971. The company still sells contact lenses and solutions to care for them, as well as prescription medications, cataract surgery products and vitamins for the eyes. Morgan Stanley gave financial advice to Bausch & Lomb’s board. Wachtell Lipton Rosen & Katz was legal counsel. Bank of America, Citigroup Inc., Credit Suisse and JPMorgan Chase & Co. served as financial advisers to New York-based Warburg Pincus. Clearly Gottlieb Steen & Hamilton LLP has acted as legal adviser.