Bausch + Lomb’s uncertain future

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Bausch & Lomb’s 20-story office tower, erected in the early 1990s was sold in 2014.
(Photo by Paul Ericson)

Bausch Health Cos. Inc.’s Rochester eye-health operations—the former Bausch & Lomb Inc.—could soon land back in the hands of a private equity owner.

Should that happen, the effect on the firm’s Rochester operations is unlikely to be as disruptive as Bausch & Lomb’s 2013 sale to its current owner, believes George Conboy, Brighton Securities chairman. 

The 2013 sale of the locally founded firm to the company now known as Bausch Health Cos. resulted in hundreds of Rochester workers losing their jobs. Also following on that sale were the move of the 165-year-old firm’s headquarters from Rochester to Canada and the sale of Bausch & Lomb’s downtown world headquarters building. The firm erected the upscale, 20-story office tower in the early 1990s partly to help shore up the city’s lagging downtown.

Conboy, who over several decades has followed the company through several incarnations, sees a return of the publicly traded firm to private hands as at worst leaving the company’s remaining local operations mostly unaffected. Such sale could even portend modest growth, he believes. 

Other sources see more possibility for disruption should the BHC eye-health unit be acquired by a private group, such as a further breakup of the unit in sales to other buyers.  

Headquartered in Laval, Quebec, Bausch Health (NYSE:BHC) announced plans last August to spin off its eye-health business as a separate, publicly traded company. 

The eye-health business, which, according the firm’s most recently filed annual report, accounted for 41 percent of Bausch Health’s approximately $8 billion in 2020 revenue, essentially is Bausch & Lomb, a business BHC refers to as its “iconic Bausch + Lomb brand.”  

Once seen as one of the area’s Big Three—along with Eastman Kodak Co and Xerox Corp.—Bausch & Lomb was a member of a trio that provided most of the region’s high-paying manufacturing jobs. The oldest of the three firms, Bausch & Lomb was founded in 1856 as a Rochester lens-grinding shop. The firm’s founders, John Jacob Bausch and Henry Lomb, remain at rest in Mt. Hope Cemetery. 

After being sold twice to out-of-town owners, and seeing its local footprint reduced, the Bausch + Lomb unit still employs some 1,100 at a 1 million-square-foot North Goodman Street manufacturing and research and development complex. 

Construction of an addition to accommodate new manufacturing lines is under way at the Goodman Street facility, BHC spokesperson Lanie Keller said in an email last month. 

A new owner would be unlikely to move or drastically cut those operations, which accounts for and produces much of the value of the unit that BHC seeks to monetize in a spinoff or sale, Conboy believes.  

The Bausch + Lomb unit includes manufacturing and sales of contact lenses and lens-care solutions, eye-related pharmaceuticals and supplements, and a California-based ophthalmic surgery equipment division. The Rochester facility is a main site for contact-lens manufacture and R&D. Bausch + Lomb also employs some 1,300 at a contact-lens manufacturing facility in Waterford, Ireland.

The eye-health unit comes into play as a spinoff or sell-off offering as the latest twist in the company’s somewhat checkered history.

After falling under Securities and Exchange Commission scrutiny and suffering bad publicity over an eye disease linked to one of its contact-lens solutions, Bausch & Lomb was bought and taken private in 2007. 

The buyer was the New York City-based private equity group Warburg Pincus LLC, which, after bulking up the firm’s pharmaceuticals business, sold Bausch & Lomb to a group that returned it to publicly held status six years later. 

That group, headed by Michael Pearson, a onetime McKinsey & Co. consultant, renamed the firm Valeant Pharmaceuticals Inc. Under Pearson, Valeant moved the company’s headquarters to Canada and relocated corporate management functions to New Jersey, trimming hundreds of Rochester jobs in the process. 

Pearson also loaded the company up with debt incurred to make leveraged acquisitions in a drive to create a pharmaceuticals powerhouse. 

The company got big, initially winning Pearson Wall Street plaudits and sending its stock to triple-digit heights, but by 2016, Valeant was facing SEC scrutiny and congressional probes over alleged price manipulations. The company’s stock price plunged and a physically ailing Pearson was ushered out. A new management team headed by current BHC CEO Joseph Papa took over. 

While Papa is credited with stabilizing Bausch Health by selling off some acquisitions and using the proceeds to pay down roughly $8 billion of the firm’s debt, much of the debt incurred under Pearson—approximately $24 billion—still weighs on the company’s books. 

A spinoff of Bausch + Lomb into a separate public company makes sense and could give Bausch Health an infusion of cash to help retire some of that debt, Conboy says. 

George Conboy

“The spinoff would unlock value in the iconic Bausch + Lomb brand and (its) integrated portfolio of eye health products (enabling) BHC to focus on expanding its leadership in gastroenterology, aesthetics/dermatology, neurology and international pharma,” BHC said in its August announcement of the spinoff plan. 

The Bausch + Lomb/International segment—the eye-health unit plus Bausch Health’s International Rx business—accounted for 55 percent of the company’s $8 billion in total revenues last year. The other segments and their share of revenues were Salix, focused on gastroenterology products, 24 percent; Ortho Dermatologics, dermatological products and medical aesthetic devices; 7 percent; and Diversified Products, which includes pharmaceutical focused on neurology and other therapeutic classes, and dentistry and generic products, 14 percent.

Breaking up BHC into separate divisions would create “two highly focused, stand-alone companies (that) would unlock what we see as unrecognized value in Bausch Health shares,” Papa predicted in the statement.  

Bausch Health so far has publicly announced no further advances of the proposed spinoff. However, some recent developments point to a possible course alteration from the plan the firm announced last year. 

In March, the private equity industry newsletter PE Hub, citing “four unnamed sources familiar with the process,” reported that offers from potential Bausch + Lomb buyers are expected to start coming as soon as this month. 

According to that report, the same investment bankers Bausch Health hired to oversee a publicly traded spinoff, Goldman Sachs and Morgan Stanley, are shepherding a possible sale to private buyers. Those same firms were advisers in the firm’s sale to Valeant.  

While Bausch Health’s plan as initially announced calls for the eye-health spinoff to remain publicly traded, the company’s debt load could make a sale to a private equity buyer more likely, PE Hub states. 

Possible pressure to quickly squeeze a maximum amount of cash out of the Bausch + Lomb spinoff could come from Carl Icahn, a well-known as activist investor who holds a 7.8 percent stake in Bausch Health. 

As a spinoff appears imminent, two Icahn associates—Icahn’s son Brett Icahn and Steven Miller—were named to BHC board seats. BHC reported in a March 18 SEC filing that the pair had been seated on its board a day earlier. The younger Icahn and Miller are both portfolio managers with the Icahn L.P. holding company.   

“An outright sale versus a spin would present an opportunity to generate a lot more cash needed to de-lever,” PE Hub states.

Conboy concurs. Bausch Health’s $24 billion in debt makes for a powerful incentive to quickly squeeze the most cash possible out of the company’s breakup, he says. 

In a Feb. 12 letter to BHC’s Papa, which it publicly released, Glenview Capital Management, which holds 6 percent of BHC’s outstanding shares, cited Icahn’s involvement in urging Papa to pull a maximum amount of cash out of the spinoff by selling off pieces of Bausch + Lomb.

“Sell off stakes in or portions of your high-value, optimally-profiled assets … to the many pools of capital who are chasing a scarce number of fairly-valued, quality growth alternatives,” the missive urged. 

Some of the unnamed sources cited in PE Hub’s March report saw a post-sale breakup as a possibility—for instance, unloading a piece of the business to a strategic buyer interested only in Bausch + Lomb’s consumer business, whichconsists of over-the-counter products like lens solutions.  

Another possibility raised by its sources, PE Hub notes, is a sale to a special purpose acquisition company. 

Known by the acronym SPAC, special purpose acquisition companies have no actual operations; rather, they are corporate shells formed by big-money investors for the sole purpose of acquiring another company and taking it public. 

Last year was a record year for SPACS, with 248 initial public offerings raising more than $83 billion, SPAC Research reports. Special purpose acquisition companies represented roughly half of the IPO market in 2020.

A sale to a SPAC would potentially offer the best outcome for parties on both ends of the deal as well as for Rochester, Conboy says. Bausch + Lomb would stay public and intact, and Bausch Health would be able to squeeze the most possible cash out of the deal. 

Will Astor is Rochester Beacon senior writer.

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