July 31, 2007
Bausch & Lomb's Wary Eye
The Board of Directors of Bausch & Lomb Inc. yesterday responded in a letter to Advanced Medical Optics' proposal to acquire B&L for $75 per share in cash and AMO stock. B&L currently has an agreement to be acquired by affiliates of Warburg Pincus for $65 per share in cash.
In their letter, the B&L board and special committee expressed uncertainty as to the ability of AMO to complete an acquisition of B&L. ValueAct Capital, the owner of 8.8 million shares of AMO common stock, representing 14.7% of the outstanding AMO shares, has publicly stated it will vote against the acquisition. AMO is required to have its own shareholder vote on the proposal in order to approve the share component of the offered consideration. Given this completion risk, the B&L board stated that the $50 million reverse termination fee proposed by AMO was too low.
AMO had previously been designated by B&L as a party who B&L could continue to negotiate with despite the end of the "go shop" period in the Warburg Pincus merger agreement. However, in yesterday's letter the B&L board threatened to withdraw this status if AMO was not more cooperative. The effect of such a redesignation would be to require B&L, if it ultimately accepts the AMO bid, to pay Warburg a $120 million termination fee rather than the lower $40 million required if a bid was received during the "go shop" period.
B&L's actions appear to be appropriate considering the uncertainty surrounding the AMO proposal. However, the threat of a redesignation of AMO seems a bit odd -- such a move would only hurt B&L shareholders and make it harder for AMO to pay the consideration offered. It therefore seems motivated to assuage likely complaints of Warburg more than anything else. B&L is currently in discussions with AMO's shareholders concerning their intentions with respect to any AMO vote, and apparently is in a dispute with AMO concerning the provision of information to these shareholders. the actions of AMO's large shareholder have clearly thrown a monkey-wrench into AMO's bid and put them in the role of "decider" for this acquisition contest. Another victory for institutional shareholder activists.
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