Medical Device Daily Executive Editor

In the wake of last year's spate of contact solution recalls, seriously damaging both the profits and the reputation of Bausch & Lomb (B&L; Rochester, New York), the company yesterday verified what had been rumored for some time — a plan to be purchased.

Warburg Pincus (New York) will acquire all of the outstanding shares of B&L common stock for $65 per share in cash. Including debt of $830 million; the total value of the deal is about $4.5 billion. B&L said that the share price offered represents a premium of about 26% over the volume-weighted average price of its shares for 30 days prior to news reports of rumors regarding a potential acquisition of the company.

B&L said that its board, upon the recommendation of a special committee of independent directors, unanimously approved the agreement and has recommended its approval by shareholders.

The company experienced multiple difficulties in 2006 when it issued a series of recalls of its ReNu with MoistureLoc contact lens cleaner, forced by the product's association with Fusarium keratitis infections that potentially could cause blindness (Medical Device Daily, April 12, 2006/April 13, 2006/April 17, 2006). As a result of its investigation, the FDA said that the solution was perhaps the "root cause" of the infections.

Of the 180 infection victims confirmed, 59 needed cornea transplants to try to restore their vision, the Centers for Disease Control and Prevention (Atlanta), said. The recalls resulted in charges of $25 million and $19 million as the result of returns and rebates.

The recalls also seemed to come in fits and starts, those delays probably resulting in fueling a large number of liability claims against the company. Those claims have not yet been settled but their potential for large damages obviously did not deter Warburg from the purchase.

More recently, the company recalled about 1.5 million bottles of ReNu MultiPlus solution in March because trace amounts of iron could cause the cleaner to lose effectiveness earlier than normal (MDD, March 7, 2007).

Other problems for the company included the requirement to restate financial results since 2000 because of errors in accounting that, in turn, resulted in delaying its financial filings (MDD, May 11, 2006).

The move to becoming a private entity has been suggested by some as a way around continuing regulatory accounting issues.

B&L has the option of soliciting other proposals over the next 50 days, and under its agreement with Warburg, it would required to pay a break-up fee of $40 million if it accepted a superior offer.

B&L's share price rose 8% after announcement of the deal yesterday morning and closed for the day up about 9%, thus pumping up the price that Warburg agreed to pay. Some interpreted this as investor speculation other suitors may enter the bidding for the 154-year-old company and its prestigious brand recognition.

Less enthusiastic was Standard & Poor's, which cut B&L's rating to junk and placed the company on credit watch with negative implications. The credit rating was lowered to BB+ from BBB.

William Waltrip, lead director and chairman of B&L's special committee, said, "After extensive negotiations and careful and thorough analysis, together with our independent advisors, the special committee and our board unanimously endorsed this transaction as in the best interest of the company and our shareholders."

Ronald Zarrella, CEO and chairman of B&L, cited a variety of benefits from the deal, including "greater flexibility to focus on our long-term strategic direction to be a global leader" in the eye health sector. He added: "Warburg Pincus understands our industry and our business well, and will be a tremendous asset as we build upon our leadership position and continue to implement our strategic plan to deliver enhanced value for our customers worldwide. . . . We look forward to working with Warburg Pincus to quickly complete the transaction."

Elizabeth Weatherman, a Warburg Pincus managing director, said B&L has "significant potential and a strong commitment to its employees, partners and customers worldwide." She added, "This investment reflects a unique blend of our deep domain expertise in medical technology, pharmaceuticals and healthcare, which has been a focus area for Warburg Pincus since 1973."

The transaction is subject to closing conditions, including the approval of B&L shareholders, regulatory approvals and the satisfaction of other customary closing conditions. There is no financing condition to consummate the transaction.

B&L expects to hold a special meeting for stockholder vote on the merger, with the transaction expected to close promptly following satisfaction of all closing conditions.

B&L said it does not intend to discuss or disclose negotiations with any other bidder unitl it board has made a decision regarding any alternative proposals.

Morgan Stanley & Co. is acting as financial advisor to B&L and has delivered a fairness opinion. Wachtell Lipton Rosen & Katz is acting as legal counsel to the Special Committee. Banc of America, Citi, Credit Suisse and JPMorgan served as the financial advisors to Warburg Pincus, and Cleary Gottlieb Steen & Hamilton LLP is acting as legal advisor to Warburg Pincus.

Warburg reports having about $20 billion of assets under management investing from nine offices around the world. Since inception, Warburg has invested $26 billion in 570 companies in 30 countries and across a range of sectors, including healthcare, consumer and retail, industrial, financial services, energy, real estate and technology, media and telecommunications. Notable medical device investments include: American Medical Systems, ev3, Kyphon and Wright Medical.

In other dealmaking news:

• Beckman Coulter (BC; Fullerton, California) which continues to hold out hope in negotiating the purchase of Biosite (San Diego), reported that its subsidiary, Louisiana Acquisition Sub, is extending its previously reported tender offer for all outstanding shares of common stock of Biosite at its previous offering rate of $90 a share in cash. This extension conforms the expiration of the tender offer to the time at which Biosite is expected to terminate BC's revised merger agreement, dated May 1, in order to accept what it considers as the superior offer by Inverness Medical Innnovations IMI: Waltham, Massachusetts).

BC called the extension "a technical matter," thus not changing its final offer.

The extension changes the expiration of the tender offer from midnight, EDT, May 15, to midnight, EDT, May 18.

• Laboratory Corporation of America Holdings (LabCorp; Burlington, North Carolina), reported an agreement with UK-based Intema to license Intema's technology for combining first- and second-trimester Down syndrome screening test results. Financial terms were not disclosed.

LabCorp said it is the first national clinical laboratory in the U.S. to license Intema's Integrated and Sequential Down syndrome technology. When Integrated screening and Sequential screening test results include a fetal ultrasound nuchal translucency measurement, "the highest Down syndrome detection rates are achieved and fewer false-positives are experienced than with current first- or second-trimester screening," it said.

In January 2007, the American College of Obstetricians and Gynecologists (ACOG; Washington) recommended that all pregnant women should be offered screening for Down syndrome. The recommendation states that, ideally, patients should be offered testing that combines first- and second-trimester screening.