Bausch + Lomb stock surged Monday — briefly breaking out — on a report that the company is working with advisors to explore a potential sale.
The company is best known for its eye care products, including contact lenses and ophthalmic surgical devices. Its parent company, Bausch Health Cos., is facing patent litigation surrounding Xifaxan, a treatment for a brain disorder that can occur in people with irritable bowel syndrome.
"We aren't surprised to hear Bausch + Lomb is exploring a potential sale and we believe private equity is the most likely buyer," Needham analyst David Saxon said in a report.
On today's stock market, Bausch + Lomb shares jumped 14.5% to close at 17.80. The stock briefly topped a buy point at 17.85 out of a flat base, according to MarketSurge.
Bausch + Lomb Could Face Antitrust Issues
Private equity makes the most sense because other companies would likely face antitrust challenges, Needham's Saxon said.
Medical device peers Alcon, Cooper Cos. and Johnson & Johnson own 25% to 40% of the market for contact lenses vs. 10% for Bausch + Lomb.
In pharmaceuticals, AbbVie would encounter antitrust concerns given its Restasis has 45% of the dry-eye market. Bausch owns about 40% with its drugs Miebro and Xiidra.
"Given these points, a sale to a strategic would likely require splitting up Bausch + Lomb, so private equity would make for a cleaner transaction," he said.
Representatives of Bausch + Lomb declined to comment in an email to Investor's Business Daily.
Is It Enough For Bausch Health?
The company is worth about $13.4 billion, Saxon estimates. That translates to about $26 per share.
But that might not be enough for Bausch's parent company. Bausch Health owns 88% of the former and it has $15.7 billion in debt. If it used all the after-tax proceeds from selling Bausch + Lomb, Bausch Health would still have $4.8 billion in remaining debt.
"In this scenario, a Bausch + Lomb sale could alleviate investors' concerns around Bausch Health Companies' solvency," he said.
He kept his hold rating on Bausch + Lomb stock.
This story has been updated after a Needham analyst revised an earlier note which included an incorrect figure for Bausch Health Companies' debt.
Follow Allison Gatlin on X, the platform formerly known as Twitter, at @IBD_AGatlin.
