(Corrects amount of Warburg’s return and dividend in fifth paragraph of story publish May 25.)
Valeant Pharmaceuticals International Inc. (VRX), Canada’s largest drugmaker, is close to acquiring Bausch & Lomb Holdings Inc., the eye-care company owned by Warburg Pincus LLC, for about $9 billion, said a person with knowledge of the negotiations.
A deal may be announced as early as next week, said the person, who asked not to be identified because the talks are private. Bausch & Lomb, bought by Warburg in a 2007 leveraged buyout, filed in March for an initial public offering after an earlier effort to sell itself for at least $10 billion stalled, people familiar with the matter said at the time.
Valeant is actively seeking acquisitions of companies with solid cash flows in high-growth areas, Chief Executive Officer Mike Pearson said on a conference call with investors earlier this month. The Bausch & Lomb deal would be the largest of 15 acquisitions for Montreal-based Valeant since it was created in a 2010 merger of its U.S. predecessor and Canada’s Biovail Corp.
“They have got to continue to feed the machine that is their stock price and right now investors are craving these acquisitions,” Corey Davis, an analyst at Jefferies LLC in New York, said in a telephone interview. “They don’t need to do this right now, but given that this is their core competency and it feels like an Oklahoma land grab in specialty pharma, they should strike while the iron is hot.”
Warburg invested about $1.7 billion of equity in the 2007 buyout, a person with knowledge of the matter said. A sale at $9 billion, including debt, would give the private-equity firm a total return of about $4.9 billion, about three times its outlay. That includes $673 million from a dividend in March.
Adam Grossberg, a spokesman for Bausch & Lomb, said it is focused on building the best global eye-health company and declined to comment further. Laurie Little, a spokeswoman for Valeant, and Jeffrey Smith, a Warburg Pincus spokesman, declined to comment.
Valeant gained 13 percent to $84.47 yesterday in New York, its highest price since 1994. The shares have advanced 76 percent in the past 12 months.
At $9 billion including debt, Rochester, New York-based Bausch & Lomb would be valued at about 21 times earnings before interest, taxes, depreciation and amortization of $429.5 million in the year through December, according to data compiled by Bloomberg. Bausch & Lomb reported adjusted Ebitda of $643.1 million for the period, excluding costs from stock-based compensation and recent acquisitions.
The buyout values the company at 14 times those adjusted earnings, data compiled by Bloomberg show.
Separately, Bausch & Lomb said yesterday in a statement that its Ista Pharmaceuticals Inc. subsidiary, which makes eye treatments, pleaded guilty to federal charges involving drug sales. It will pay about $34 million in fines and is barred from participating in U.S. health insurance programs in connection with the settlement of allegations from January 2006 to March 2011, before Ista’s 2012 acquisition by Bausch & Lomb.
Bausch & Lomb’s eye medicines fit with Valeant’s strategy to focus on niche areas of medicine that don’t require a large infrastructure or sales force, Davis said. Valeant will likely be looking to cut costs and fire workers at Bausch & Lomb to increase the profitability of its products, he said.
“The reason they are so successful and like deals like this is because they are able to cut the fat and get value out of the synergies,” Davis said. “Whether $9 billion makes sense is going to depend on how much they can cut.”
Valeant last month was said to be in talks to merge with Parsippany, New Jersey-based Actavis Inc. (ACT), the largest U.S. generic-drug maker, according to people familiar with the matter. Actavis on May 20 said it agreed to buy Warner Chilcott Plc for about $5 billion in a stock deal.
Valeant’s largest purchase to date was a $2.4 billion deal for Medicis, a skin-care company, after it failed in 2011 to buy drugmaker Cephalon Inc. with a bid of about $5.7 billion.
Even before the merger with Biovail, Valeant’s Pearson had acquired more than three dozen products or companies since taking over in 2008. Pearson last year said his strategy has been to mix large and small deals and focus on areas such as dermatology and ophthalmology. Bausch & Lomb makes items such as contact lenses, eye-care solutions and prescription medicines.
Valeant’s most recent deal was an April purchase of Obagi Medical Products Inc., the maker of prescription skin-care products, for about $418 million. The company has a wide range of drugs, including the antidepressant Wellbutrin XL, over-the-counter products and medical devices. Valeant reported $3.5 billion in 2012 revenue and had $413.7 million in cash and near cash as of March 31, according to data compiled by Bloomberg.
GlaxoSmithKline Plc, based in London, sells Wellbutrin XL and splits profits with Valeant. Mylan Inc. and Actavis also make generic versions.
The Valeant deal for Bausch & Lomb was reported earlier by the Wall Street Journal.