Saturday, March 23, 2013

UPDATED "Fast Fred" Hassan Chronicles -- Will Bausch + Lomb Price The IPO Above $29.11? We Shall Soon See.

Overnight, a newly-created Warburg Pincus-affiliated holding company filed IPO plans with the SEC's EDGAR desk (prior backgrounder here). I'll likely offer a few other posts in the coming weeks on this topic -- including how much of a haircut from the previously-desired $10 billion valuation the IPO investors will be accepting -- but let's keep track of this particular one, first.

Let's track how much true insiders were willing to pay for the B + L common shares, during the period it went "dark". That is, the period during which it was a private company -- and not making public SEC reports. That's from October 2007 to and including yesterday's trading on the NYSE. [B + L had been shopping itself around, with a $10 billion asking price in early 2013, with nary a serious nibble -- at that price.]

At the time the offering is ultimately declared effective (and Bausch + Lomb returns to the NYSE), the company's name will become Bausch + Lomb Holdings Incorporated. At about the 358th page of the overall SEC Form S-1 registration form, we learn, on page II-2 -- at essentially the very end of the filing, that directors, officers and employees have, over the past three years, been granted/bought private common shares at an implied $29 price:
. . . .(1) As of March 1, 2013, under our Management Stock Option Plan (“MSOP”), we had outstanding stock options to directors, officers and employees to purchase an aggregate of 14,134,254 shares of common stock with a weighted average exercise price of $23.37 per share and had issued 580,784 shares of common stock for an aggregate purchase price of $11,648,427 upon exercise of options awarded under the MSOP.

(2) As of March 1, 2013, employees and directors have purchased an aggregate of 1,048,451 shares of common stock for an aggregate purchase price of $30,503,294. . . .

That math (in note 2, immediately above) works out to a non-weighted average price of about $29.11 per share purchased by classic "insiders", while the company was private. That is, insiders were willing to pay $29.11 a share -- on average -- to own the private version of Bausch + Lomb. Keep an eye on that.

It is highly likely that -- just prior to IPO time, the underwriters will adjust the number of shares outstanding, in order to price the IPO between $15 and $30 per share -- to give the offering a "prestige" price handle.

When that happens, I will report the "as adjusted" price these insiders effectively actually paid -- post IPO repricing -- for these shares.

We will then see whether the insiders are seeing an implied gain on the IPO, or an implied loss. And we will see whether the $10 billion asking price from early 2013 was ever anything other than a pipe dream. [About 3.3-times sales ($10 billion/$3 billion in 2012 sales) for a company with this much debt -- and these thin margins -- seems pretty far beyond the pale, in today's markets, in my personal opinion.]

Finally, Fred, Brett and Bob will see all the existing stock options repriced, and many of them cashed out, here prior to the IPO -- all dressed up as financial arrangements in respect of a $774 million cash dividend Warburg has paid itself, out of B + L, via bank borrowings, effective March 15, 2013. This is disclosed in the second paragraph found on page 4 of the prospectus.

At the moment, Mr. Hassan controls 296,957 shares, and Mr. Saunders 841,649 (he's the nominal CEO of B + L, now). The new hire of the bunch, Mr. Bertolini controls only 232,000 shares (these numbers are likely to change significantly by IPO time). That is the core of the legacy Schering-Plough team now running the private version of Bausch & Lomb.

Do stay tuned -- "Fast Fred" never leaves a dime on the table, when it can be swept up for him -- and his co-horts -- in these transactions. I'll keep you informed.

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