May 24 (Bloomberg) -- Advanced Medical Optics Inc., a maker of eye-care and surgical products, said it may make an offer for Bausch & Lomb Inc., setting up a potential bidding war with the buyout firm Warburg Pincus LLC.

Shares of Bausch & Lomb rose $3.76, or 5.7 percent, to $70.21 at 4 p.m. in New York Stock Exchange composite trading, while Advanced Medical fell $1.34, or 3.2 percent, to $41.10. Warburg Pincus earlier won an agreement with the Bausch & Lomb board to pay $65 a share, or $3.67 billion.

Advanced Medical has one-fourth as many employees and half the sales of Bausch & Lomb. Purchasing the company at a time that Bausch & Lomb is recovering from the recall would help Advanced Medical expand in the eye-care market and eliminate a 154-year- old rival with a known brand name. Warburg Pincus said this month it wants Bausch & Lomb because of its ``significant potential.''

``As Advanced Medical moves forward, and decides whether to tender a bid, there's a good likelihood you could see Warburg revisit their $65 offer,'' said Chris Cooley, an analyst with FTN Midwest Securities in Cleveland, in a telephone interview. Cooley covers both Advanced Medical and Bausch & Lomb, and doesn't own either stock.

`Highly Complementary'

Advanced Medical, which makes contact lenses and cleaner as does Bausch & Lomb, also produces medical devices for the eye, including products for cataract surgery and implants as well as laser vision correction. The Santa Ana, California-based company acquired IntraLase Corp. of Irvine, California, in April to add a laser device that replaces knives in the first stage of a common procedure to correct vision.

``We believe it is only logical to explore this opportunity given the highly complementary nature of our two businesses,'' Advanced Medical said today in a statement. The company said it wants to offer a full range of vision-care products for people of all ages.

Advanced Medical Chief Executive Officer James Mazzo ``has been aggressive in pursuing companies such as IntraLase, so I shouldn't be overly surprised that he continues to be aggressive here,'' said Jeff Johnson, an analyst at Robert W. Baird & Co. in Milwaukee, in a telephone interview today.

The company mentioned no price; the television channel CNBC reported that the offer may exceed $70 a share. Warburg stands to get a $40 million breakup fee if Bausch & Lomb accepts another offer, according to their agreement earlier this month.

Growth by Acquisitions

Advanced Medical was spun out of Allergan Inc. in 2002. Since then, it has grown by acquiring Pfizer Inc.'s eye-surgery business and Vizx Inc., a laser eye-surgery company, according to its most recent annual report with the Securities and Exchange Commission.

In 2006, Bausch & Lomb had 13,000 employees worldwide and $2.3 billion in sales. Advanced Medical had 3,300 employees at the end of last year and $998 million in sales, according to its annual report.

Bausch & Lomb recalled the lens cleaner ReNu with MoistureLoc in 2006 after the product was tied to a potentially blinding infection. The action resulted in charges of $25 million as well as $19 million in lost revenue from returns and rebates.

The company has also been restating its financial results since 2000 because of accounting misconduct and has delayed filings with U.S. regulators.

Keep Troubles Private

If Warburg takes over Bausch & Lomb, it could manage the company's legal troubles as a private company, keeping potentially negative news about MoistureLoc away from public scrutiny, Johnson said. Bausch & Lomb is facing 344 lawsuits related to the ReNu with MoistureLoc recall, and more than 50 patients have undergone corneal transplants after becoming infected, he said.

``Warburg has deep pockets and has done a lot of homework,'' Johnson said. ``They've concluded there's value to be had here at $65. Obviously there's significant brand equity with Bausch & Lomb, and people are trying to figure out how much that is worth.''

If Advanced Medical outbids Warburg, it could cut costs, eliminating overlapping facilities and workers, Johnson said.

Before the recall, Bausch & Lomb shares traded as high as $87.50 a share in July 2005.

Ronald Zarella, Bausch & Lomb's chief executive officer, urged shareholders to support Warburg's bid, in a statement earlier this month.

Lying on Resume

Zarella, who became CEO in November 2001, was caught lying on his resume in October 2002. He admitted he didn't have a master's degree in business administration from New York University. He kept his job, and the company withheld his $1.1 million bonus that year.

In February, Bausch & Lomb filed a restated financial report covering years back to 2001 to keep its listing on the New York Stock Exchange. Net income for the year ended Dec. 27, 2003, was reduced to $1.98 a share, from $2.34 previously reported. Net income for the year ended Dec. 25, 2004, was cut to $2.83 a share from $2.93.

Mike McDougall, a spokesman at Bausch & Lomb, declined to comment on Advanced Medical's potential bid, as did Katja Gehrt, a spokeswoman for New York-based Warburg Pincus. Steve Chesterman, a spokesman for Advanced Medical Optics, didn't immediately return a call.

Warburg said earlier this month that it would assume about $830 million in debt as part of the takeover of Bausch & Lomb. The eye-care company said it had $500 million in cash at the end of 2006.

To contact the reporter on this story: Luke Timmerman in San Francisco at ltimmerman@bloomberg.netEmily Brown in Washington at ebrown18@bloomberg.net;

Last Updated: May 24, 2007 16:39 EDT