Advanced Medical Optics bid for Bausch & Lomb runs into troubled waters
This article was originally published in Clinica
Dissident shareholders could scupper Advanced Medical Optics' (AMO) plans to acquire Bausch & Lomb and clear the way for rival bidder Warburg Pincus to claim final victory.
ValueAct Capital, one of AMO's largest shareholders, last week made public a letter dated July 10 and addressed to the ophthalmic company's CEO James Mazzo, stating its opposition to AMO's proposed $4.3bn acquisition of B&L. The San Francisco-based private equity firm said the deal would "reduce shareholder returns, present substantial execution risk and is fundamentally ill-advised".
Since then, Jeffrey Uben, managing partner of ValueAct, has indicated in various media reports that other major AMO shareholders, namely Fidelity Value Fund and MFS Investments, were not happy with the transaction either.
AMO promptly lashed back at ValueAct Capital, sending a reply to its shareholder the day after. In the letter, Mr Mazzo reiterated the benefits of a merger between AMO and B&L and said the company had been "encouraged by the market reaction to [AMO's announcement of the proposed acquisition] and the positive feedback from many stockholders on the strategic rationale of the transaction".
The company CEO said ValueAct's opposition to the transaction was "especially hard to understand" as the PE firm had been backing the transaction up to then and even "expressed interest in investing $700m in equity" into the acquisition.
In a Financial Times article, Mr Ubben has refuted Mr Mazzo's claims by saying that he has always been "sceptical" of the transaction and denied ever offering money to AMO to support its bid.
Warburg still in the running
The vehement resistance from ValueAct came less than a week after AMO announced it had made a bid for B&L, which is currently in a pending merger agreement with Warburg Pincus (see Clinica No 1264, p 1). While AMO's $75-per-share proposal is $10 more than Warburg's, it is said that B&L may still be swayed by the all-cash nature of Warburg's offer.
According to Wachovia analyst Larry Biegelsen, a transaction with Warburg also has other advantages such as a lower regulatory risk (Warburg last week received US antitrust approval to acquire B&L), there is no requirement for shareholder approval, and, therefore, the prospect of a speedier completion time. "In addition, Warburg has deeper pockets," wrote Mr Biegelsen. "Given these advantages, Warburg could potentially acquire Bausch for less than what AMO is offering."
The Wachovia analyst was less upbeat about the financial upside AMO will gain should it succeed in acquiring B&L. "While we see some strategic rationale for [the acquisition], we are concerned that AMO could overpay for B&L and overextend itself. In addition we have lower expectations than management regarding accretion from a potential deal," he noted.
AMO is currently dealing with the fallout from a worldwide recall of its MoisturePlus contact lens cleaner. The recall followed a study that suggested a link between the use of the solution and a higher incidence of a bacterial eye infection.
B&L has also been hit hard by recalls of its contact lens cleaner. Mirroring AMO, the company last year removed its MoistureLoc product off the shelves for good, after it had been linked to several eye fungal infections. The company's Greenville, South Carolina facilities were scrutinised by the FDA as a result and B&L was slapped with a warning letter. The factory and distribution centre last week received the all-clear from the agency following an inspection, deeming both facilities to be in "acceptable compliance".