Valeant Pharmaceuticals Inc. shares hit a new high Monday after the company announced a US$8.7-billion purchase of Bausch + Lomb Holdings.
The Montreal-area company’s shares (TSX:VRX) closed up $8.83 or 10 per cent to close at $95.85 on the Toronto Stock Exchange after trading as high as $96.25.
Valeant chairman and chief executive Michael Pearson said the deal will turn the company into a global leader in eye health — a relatively new area of strategic interest for Canada’s largest publicly traded drug maker.
“Bausch + Lomb’s world-renowned brand, comprehensive portfolio of leading eye care products and promising late-stage pipeline are an ideal strategic fit for our current ophthalmology business and we are strongly committed to continuing to build a sustainable eye health business,” Pearson said in a statement.
Valeant, which reports in U.S. currency, will finance the deal by issuing between $1.5 billion and $2 billion of new equity and issue new debt to pay for the remainder — up to $7.2 billion.
Neil Maruoka, an analyst with Canaccord Genuity in Toronto, said Valeant (TSX:VRX) typically uses a lot of debt to fund its acquisitions but the company will be able to tap Bausch + Lomb’s large cash flow.
“The strategic fit is excellent and Bausch + Lomb has a strong growth profile that Valeant would also be looking for,” Maruoka said in an interview Monday.
Brent Saunders, chief executive of Bausch + Lomb, said the companies share a commitment to providing innovative, high-quality products and service.
“I am confident that under their stewardship, the Bausch + Lomb brand will continue to stand for excellence and innovation in eye health,” Saunders said.
Saunders will be an adviser to Valeant after the deal closes and Fred Hassan, who is chairman of Bausch + Lomb’s board of directors, will join the Valeant board.
About half the purchase price will be used to repay Bausch + Lomb’s outstanding debt and $4.5 billion will go to an investor group led by Warburg Pincus, which bought the company in 2007.
Valeant expects to achieve at least $800 million in annual cost savings by end of 2014 as a result of the deal.
The company will also hire some of Bausch + Lomb’s senior executives to help run the business, which is best known for its contact lenses and solutions.
Bausch + Lomb’s chief medical officer, Dr. Calvin Roberts, will play a similar role at Valeant and Dan Wechsler, will become a Valeant executive vice-president and group chairman of ophthalmology and eye health.
Valeant said it expects additional members of the Bausch + Lomb management team to join later.
Maruoka said his firm had assumed there would be an all-share deal but noted that debt financing is “the way they’ve operated all along.”
He estimated it will take less than 18 months for Valeant to get its debt down to its target level of four times earnings before interest, taxes, depreciation and amortization.
The deal will put Valeant in competition with established players like Novartis, Allergan, and Johnson & Johnson, which lead Bausch & Lomb in most product categories, he said.
Valeant tried to purchase Ista Pharmaceuticals last year, but was outbid by Bausch & Lomb. It acquired EyeTech in February 2012 for an undisclosed price and bought the Visudyne product line from QLT Inc. in late 2012 for a little more than $100 million.
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