Tuesday, January 8, 2013

Bausch + Lomb Buyout "Sorta" Worth Thinking About: CEO Frazier


This is really no surprise -- Mr. Frazier, on behalf of the shareholders, is always supposed to keep an open mind about transactional opportunities to boost returns. But I read this as little more than that.

Remember that only about five days ago he told the bankers running the B + L deal process that even though Merck's consumer health business is a smaller contributor -- and he is looking at ways to increase the contribution -- he was relatively happy with it.

And adding perhaps $10 billion to the allocated capital the consumer health unit needs to cover, for EPS purposes, given the relatively lower margin businesses/franchises B + L operates [as compared to say Merck's Isentress® (HIV) or Victrelis® (HCV)]. . . seems a bit of a stretch. At that price, it would be a higher multiple of current year's sales (around 3.2X) than Merck paid for all of legacy Schering-Plough (around 2.2X). [Nice try, Fred!]

And so, this is very likely just idle investment conference chatter, so as not to offend Goldman's bankers -- who took the time to pitch B + L to Whitehouse Station over the holidays.

Here is the Bloomberg item -- for what it is worth -- but do go read it all:
. . . .“It’s something that’s worth thinking about, that’s the most I can say,” Frazier said in an interview yesterday at the JPMorgan Chase & Co. health conference in San Francisco.

Warburg, working with Goldman Sachs Group Inc., is giving interested parties access to its financial data and seeking first-round bids by month’s end, said people with knowledge of the matter, who asked not to be named because the process is private. Warburg is seeking at least $10 billion for the business, these people said. Goldman Sachs contacted some prospective bidders including Merck before Christmas with information about Bausch & Lomb, said one of the people.

Frazier has said that he’s happy with Merck’s diversified business model, which includes animal health and consumer health units. . . .
So, file this one under "the price makes the horse" (or, doesn't!), right? Of course, as ever, we will keep you posted if this gets serious.

5 comments:

Anonymous said...

But, Fast Freddie is involved~shouldn't that count for more?!

Sarcasm intended.

Condor said...

Hilarious!

Yes -- I'd say that's why something like 2.85 times annual sales (at a $10 billion auction price). . . is too high, by quite a bit.

Because Fred is hanging around this deal -- and remember, Merck paid only about 2.2 times annual sales for all of Schering-Plough (in theory, a higher margin group of operations).

I di laugh out loud when I saw yours, Anon!

Well-met, and do stop back!

Namaste

Condor said...

And, not to belabor the painfully obvious, here -- Mr. Hassan was involved in selling Schering-Plough to Merck (where, with hindsight, we learned that 4.5 of his 2008 vaunted five "stars" were outright duds, or deeply-delayed -- 5 years or so, for additional new study data).

Sorry to pile on -- but it is hard to imagine that there isn't at least some of that kind of shineola embedded in the B + L book, with a fellow legacy Schering-Plough guy at the President spot. . .

Namaste

Anonymous said...

No belaboring noted. As a truly ex-SP member, over 25 years, I was not happy the day Freddie and his crew came on-board. I left 2 years after his start-so many of my fellow workers were not as fortunate.

But to continue the dialog:
...at the J.P. Morgan Healthcare Conference, Bausch + Lomb CEO Brent Saunders said he's "aspiring to return to public markets," the news service reports. Saunders declined to comment on the reports of a possible sale.


http://www.fiercepharma.com/story/rumored-pharma-target-bausch-lomb-aiming-ipo-instead/2013-01-09

Condor said...

Right -- and that statement may well put Saunders at odds with his Hassan-led Warburg Pincus handlers.

It does smack of job preservation self interest, as well.

Note that in a purchase, Sunders is likely out of work -- in an IPO, all his equity likely inflates in value geometrically, and he likely keeps his job.

It would all be quite hilarious -- if it wasn't so. . . sad.