Bausch + Lomb's stock soars 14% on report company is considering selling itself

By Ciara Linnane

Eyecare company is working with Goldman Sachs on a deal that would extricate it from its indebted parent, the Financial Times reported

The stock of eyecare company Bausch + Lomb Corp. was up 14%on Monday, after the Financial Times reported that the company is considering selling itself as a way to extricate itself from its indebted parent.

The company (BLCO), which was carved out of parent Bausch Health Cos. Inc. (BHC) in 2022, is working with Goldman Sachs to explore a deal and expects to draw interest from private equity firms, the FT reported.

Bausch Health is the former Valeant, a company that grew rapidly thanks to a string of acquisitions that left it with $21 billion in debt, almost $10 billion of which will mature in 2027.

Bausch Health retained an 88% stake in Bausch + Lomb after listing the shares and planned to offload the rest in a deal with investors that would have seen it exchange Bausch Health shares for Bausch + Lomb stock.

But the process was upended by doubts about whether the parent would still be solvent after separating from Bausch + Lomb, which is a major revenue contributor. The parent would have to pass a solvency test in order for the deal to be approved.

Bausch Health is also facing the expiry of the patent on its lead drug Xifaxan in 2029. The drug, a treatment for gastrointestinal issues such as irritable bowel syndrome, has become the subject of legal battles over the patent.

Creditors, including Apollo (APO), Elliott Management and GoldenTree Asset Management, had raised concerns about the spinoff plan because of the effect it would have on Bausch Health's balance sheet.

Bausch Health's leading shareholders include funds run by billionaire Carl Icahn and John Paulson's fund. They favored the spinoff plan as a way to get a greater share of the eyecare business. Bausch + Lomb is one of the leading contact-lens suppliers in the world.

Bausch Health and Goldman Sachs declined to comment to the FT.

Bausch + Lomb is headed by Brent Saunders, a longtime pharmaceutical executive known for leading Allergan into a much-hyped but failed $160 billion merger with Pfizer Inc. (PFE) in 2015 and then into an acquisition by AbbVie for $63 billion in cash and stock in 2020.

See also: After IPO, Bausch + Lomb turns to an industry favorite to run the company

Needham & Co. analysts said they were not surprised by the report and that private equity was the most likely buyer.

"There are only a few strategics that would make sense, in our view, and all would likely run into anti-trust challenges," senior analyst David Saxon wrote in a note to clients.

He named medical-device peers Alcon Inc. (ALC), Cooper Cos. (COO) and Johnson & Johnson (JNJ) as examples of companies that would hit anti-trust issues given each has 25% to 40% of the contact lens market.

In the pharma segment, AbbVie Inc. (ABBV) would also encounter antitrust issues given its Restasis has a 45% share of the prescription dry-eye market.

"Given these points, a sale to a strategic would likely require splitting up BLCO, so private equity would make for a cleaner transaction," Saxon wrote.

It may not be enough for Bausch Health, however, which the analyst estimates has leverage of 9.0x.

"If BLCO were to be sold for $26 and BHC uses all of the after-tax proceeds to repay debt, BHC's year-end leverage would be 5.1x and it would still have $12.3B in remaining debt," he wrote. "In this scenario, it is uncertain a BLCO sale would alleviate investors' concerns around BHC's solvency and could be challenged by BHC creditors."

Needham has a hold rating on Bausch + Lomb's stock.

The stock has gained 3.7% in the year to date, while the S&P 500 SPX has gained 18%.

Read now: Bausch Health responds to rumors, says it is not considering bankruptcy

-Ciara Linnane

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

09-16-24 1039ET

Copyright (c) 2024 Dow Jones & Company, Inc.