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Valeant Rumored to Be Interested in Acquiring Bausch & Lomb

Written by on May 25, 2013

The Wall Street Journal today reported that Valeant is in talks to acquire ophthalmology firm Bausch & Lomb for approximately $9 billion. The deal is not overly surprising given that Valeant has repeatedly expressed a strong desire to grow in ophthalmology.

With this deal, Valeant would be jumping headfirst into the ophthalmology market. The firm had previously been slowly developing a presence in the market through small acquisitions. It attempted to purchase Ista Pharmaceuticals in early 2012, but was outbid by Bausch & Lomb. It moved on and acquired EyeTech, which markets a wet age-related macular degeneration, or AMD, product, in February 2012 for an undisclosed price and followed that deal with the acquisition of the Visudyne product line from QLT Inc. in late 2012 for just over $100 million.

As is traditionally the case with Valeant’s acquisitions, the deal would bring significant tax savings, but the operational synergies may be lower than historical deals because Valeant’s small ophthalmology business would provide minimal overlap. The bigger contribution of the deal would be creating a new platform for future acquisitions, as the deal would give Valeant the infrastructure and scale to pursue the types of bolt-on acquisitions that have provided extremely high returns on investment in the dermatology segment.

Valeant believes ophthalmology as another niche market it can consolidate, similar to the way it built up its dermatology business. Similar to dermatology, the ophthalmology market sees a high cash-pay component, so it faces minimal pricing pressure from governments and managed care. Larger firms had very little presence in dermatology, and in fact many Big Pharma firms were exiting the space, leaving the door wide open for Valeant to consolidate and become the market leader. In the ophthalmology market Valeant will be going up against larger and more established competitors such as Novartis, Allergan, and Johnson & Johnson, which have market share leads over Bausch & Lomb in most product categories.

Given Valeant’s elevated debt levels after the Medicis deal, any potential deal would be primarily funded with stock. Valeant has earned an exemplary stewardship rating for actively protecting shareholders’ interests by both repurchasing shares when cheap and refusing to use underpriced equity to finance acquisitions, so management’s newfound openness to using equity for a potential deal confirms the belief that shares have now reached roughly a fair valuation.

 

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