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Boston College Law School

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Friday, July 6, 2007

Bausch & Lomb and AMO's Loving Stare

Advanced Medical Optics, Inc., the eye care products supplier, confirmed yesterday it had proposed to acquire Bausch & Lomb for $75 per share in cash and AMO stock.  $45 of the consideration will be in cash and the remainder in stock (no details on whether the stock collar was fixed or floating).  The proposal values Bausch & Lomb at $4.3 billion and is not contingent upon financing.  The bid comes on the heels of a $65 all-cash transaction agreed to earlier in the year by  private-equity firm Warburg Pincus LLC which valued Bausch & Lomb at $3.7 billion. 

The Bausch & Lomb press release actually contains more details of AMO's bid than AMO's release itself.  According to Bausch & Lomb, the AMO proposal includes (1) a proposed $130 million reverse termination fee payable by AMO to Bausch & Lomb in the event the transaction does not close due to the failure to obtain requisite antitrust clearance and (2) proposed reimbursement by AMO of Bausch & Lomb’s expenses up to $35 million if AMO fails to obtain the approval of its shareholders.  In addition, AMO will have up to 12 months to close the transaction and interest would be paid in cash with respect to the purchase price by AMO at the rate of 7.2% per annum beginning six months after an agreement is reached. 

AMO's proposal came before the end of Bausch & Lomb's 50 day go-shop.  And the Bausch & Lomb board has determined that the AMO Proposal is bona fide and is reasonably likely to result in a superior proposal, as defined under the Warburg merger agreement.  AMO is therefore an excluded party under the agreement and Bausch & Lomb is permitted to continue negotiating with AMO with respect to the AMO Proposal despite the end of the “go shop” period.  Because AMO's bid was made before termination of the go-shop Warburg Pincus will be entitled to a $40 million termination fee from Bausch & Lomb if an agreement is signed with AMO.   

Bausch & Lomb is the second go-shop deal in a week to attract another bidder (Everlast was the other one).  A heartening change from previous times when go-shops were seen as mainly illusory cover for private equity bids made with management complicity.  It still remains to be seen, though, whether the increasingly competitive M&A market will see more "go-shop" bids.  And if it does so, targets and initial bidders react by simply failing to include these provisions. 

http://lawprofessors.typepad.com/mergers/2007/07/bausch-lomb-and.html

Takeovers, Transaction Defenses | Permalink

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