Valeant Pharmaceuticals Intl Inc (NYSE:VRX) stirred the merger and acquisition space once again with its announcement that it is about to acquire multinational eye health firm, Bausch & Lomb, for $8.7 billion in cash. Of the total amount, $4.5 billion will be paid to an investor group led by private equity firm Warburg Pincus, while the remaining amount will go toward repaying Bausch & Lomb’s outstanding debt. Valeant Pharmaceuticals Intl Inc (NYSE:VRX) has lined up a combination of debt and equity offerings to raise funds for the acquisition.
Bausch & Lomb has a great deal of history to their credit having invented the first soft contact lens. The company’s business portfolio is comprised of eye health products within three main business units, namely pharmaceutical, vision care, and surgical divisions. Following the acquisition, Bausch & Lomb is likely to become Valeant Pharmaceuticals Intl Inc (NYSE:VRX)’s ophthalmology division, boosting the latter’s existing portfolio of ophthalmology products. All cash deals carry a higher risk as opposed to share swap transactions and as such, it is an indicator that Valeant Pharmaceuticals Intl Inc (NYSE:VRX) is looking forward to make it a success.
Why Valeant agreed to the deal
It is not difficult to see why Valeant Pharmaceuticals Intl Inc (NYSE:VRX) agreed to this aggressive deal. The transaction is likely to result in annual cost savings of at least $800 million by the end of 2014. In addition, the acquisition will start contributing to Valeant Pharmaceuticals Intl Inc (NYSE:VRX)’s bottom line from day one. Valeant expects the transaction will expand its eye care portfolio’s annual revenue of more than $3.5 billion. This will be quite a shift in focus for the company which has largely focused on dermatology so far. The expansion of the lucrative ophthalmology business is largely seen as positive by the market even though the acquisition is heavily funded by debt.
The Cooper Companies, Inc. (NYSE:COO) among indirect gainers
The deal also bodes well for The Cooper Companies, Inc. (NYSE:COO), which is a contact lens manufacturer and direct competitor of Bausch & Lomb. Wells Fargo analyst Larry Biegelsen projects that Valeant is likely to focus more on Bausch & Lomb’s pharmaceutical business than its contact lens business. This may seem baseless on the surface, but there is some element of truth in this logic as the stock gained nearly 4% after the announcement of the deal.