Bausch & Lomb Accepts $4.5 Billion Takeover Bid

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Bausch & Lomb, a troubled leader in the eye care industry, said yesterday that it had accepted a $4.5 billion takeover offer from investment groups controlled by Warburg Pincus, a private equity firm known for backing a wide range of health care companies.

The offer was for $65 a share in cash. The deal includes $3.67 billion in cash and the assumption of $830 million in debt.

But the structure of the deal, which included a relatively modest $40 million breakup fee if Bausch can find a more attractive offer in the next 50 days, suggested that Bausch believed competing bidders could emerge. So did the early reaction on Wall Street — the shares opened at $67.71, up more than 10 percent from their closing price Tuesday of $61.50. They closed up $6 yesterday, at $67.50.

But analysts warned that the price reflected the plight of the large number of short-sellers who had gambled in recent weeks that Bausch shares would fall. The buyout offer forced them to race to buy shares to cover their positions to limit their losses.

“You are seeing a massive short squeeze,” said Joanne K. Wuensch, an analyst at BMO Capital Markets in New York. Ms. Wuensch, who valued Bausch last year at about $65 a share when speculation about a possible leveraged buyout began circulating, said that it was unlikely that a competing bid would emerge from a company in the health care industry but that other private investors might offer a bid.

To emphasize the value of the offer, Bausch and Warburg said that it represented a 23 percent premium over Bausch’s average price in the 30 days before speculation of a potential deal began lifting Bausch’s stock price late last month. The deal could close soon after the 50-day search for alternatives if no better offers emerge because Warburg’s offer would not present any antitrust issues.

Warburg or any competing acquirer would be taking on a famous brand name tarnished by a global recall last year of one of its leading products — the ReNu with MoistureLoc contact lens cleaner, which was linked to an outbreak of fungal infections among lens wearers in Asia and the United States. The company faces scores of lawsuits on behalf of lens wearers who blame the cleaner for infections that forced them to undergo eye surgery and, in a few cases, cost them an eye.

That brand damage may have been exacerbated two months ago by a smaller recall of the older product that replaced MoistureLoc on the shelves, ReNu Multiplus, after reports that traces of excess iron in some bottles were causing discoloration. Bausch said the contamination had not caused any injuries but might shorten the period in which the cleaning and sterilizing solution would be effective.

Bausch, based in Rochester, makes contact lenses, pharmaceuticals for the eye and optical surgery products in addition to its lens cleaners.

On top of its marketing woes, Bausch has been struggling for more than a year to finish reauditing its books for reported accounting irregularities in overseas operations and has sought repeated extensions from federal regulators for filing of financial reports. The accounting tangle has also forced it to renegotiate lending agreements that it had violated by not filing the financial statements.

The company said last month that income fell last year by 22 percent, to $14.9 million, and that a decline of lens care sales by about 21 percent reduced overall revenue to $2.29 billion, down about 2.5 percent from 2005.

Standard & Poor’s, the bond rating agency, responded to yesterday’s deal by lowering its rating on the company’s $830 million in debt to BB+, a level commonly referred to as junk bond status.

In a news release announcing the buyout plan, Ronald L. Zarrella, Bausch’s chairman and chief executive, said, “We are pleased that this transaction appropriately recognizes the value of Bausch & Lomb’s highly respected brand and innovative products in the eye care industry, while providing our shareholders with an immediate and substantial cash premium.”

Warburg’s investment is being handled by its New York office. The company manages $20 billion in assets from offices in North America, Europe and Asia. Mr. Zarrella said the investment firm “understands our industry and business well.”

That may be too true, according to some analysts. Jack T. Ciesielski, an accounting specialist whose company, R. G. Associates, is a portfolio management and research firm based in Baltimore, said that private equity firms had an advantage over other investors in assessing a company’s value if the company had not been filing public financial statements. “I’m surprised nobody is jumping up and down and saying, ‘How fair is this?’ ” Mr. Ciesielski said.