Advanced Medical Optics Inc. said on Thursday it was interested in acquiring Bausch & Lomb Inc. and was willing to pay more than the $3.67 billion proposal the eye care company accepted from a private equity firm.
“We believe that the current transaction with Warburg Pincus undervalues Bausch & Lomb, and we plan to enter the go-shop process with the intention of exploring a superior offer for the company,” Advanced Medical said in a statement.
Bausch & Lomb declined to comment.
Bausch & Lomb agreed last week to be acquired by Warburg Pincus for about $3.67 billion. Bausch & Lomb, however, had the right to solicit other offers during the next 50 days.
Bausch & Lomb’s stock has traded above Warburg Pincus’s offer of $65 per share since the deal was announced as investors expected a higher offer to emerge.
The Warburg Pincus bid had only offered a 5.7 percent premium to the closing price of Bausch & Lomb shares on May 15, the day before the deal was announced. Leading up to that deal, however, the stock had risen about 25 percent since mid-March on rumors the company would be acquired.
The success of a rival offer may depend not just on the price tag, but the currency being used since the Warburg Pincus offer is all cash.
“It’s a surprise (that) someone comes along and offers a higher cash bid. it’s going to be hard for the (Bausch & Lomb) board not to recommend it,” said Jeff Johnson, an analyst with Robert W. Baird.
“If it’s a combination of stock and cash, then maybe you have to think about it a little differently,” Johnson said.
A rival company such as Advanced Medical could cut overlapping costs and jobs if it merged with Bausch & Lomb. That’s an advantage that a private equity firm would not have, analysts said.
“From a cost standpoint, there’s no question that another company can save more money in back office and things like that than a financial buyer,” Johsnon said. “But it still seems like there would be some antitrust issues.”
Advanced Medical said it would only proceed with a bid after reviewing Bausch & Lomb’s proprietary financial records, but there was no assurance a deal would be reached.
“We believe it is only logical to explore this opportunity given the highly complementary nature of our two businesses,” Advanced Medical said. “Consideration of this potential transaction is consistent with our existing strategy to provide a full range of products that address vision care needs of people of all ages.”
The possible bidding war for Bausch & Lomb comes just a year after the company conducted a worldwide recall of its popular contact lens solution last year. It was still recalling some product this year and has been struggling to overcome accounting troubles and product liability.
If Bausch & Lomb accepts a superior bid, it must pay a $40 million break-up fee to Warburg Pincus.
A flurry of options activity was also seen in Bausch & Lomb. The June calls, granting the right to buy Bausch shares at $70, already exceeded their contracts outstanding for that series during the first hour of trading, indicating that new positions were initiated. Those call contracts traded 938 times and cost $1, up 85 cents on the day.
“This indicates that investors are anticipating higher bids for Bausch & Lomb,” said William Lefkowitz, options strategist at brokerage firm vFinance Investments in New York.