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.


Anonymous said...

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

Sarcasm intended.

Condor said...


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!


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. . .


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.


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.