Bausch + Lomb files for public offering

27 Mar 2013

But money raised will be used mainly to repay a new loan rather than invested in the ophthalmology business.

The owners of Bausch + Lomb, one of the world’s foremost ophthalmology businesses and a pioneer in the field of laser eye surgery, are preparing the company for an initial public offering (IPO) of stock.

In an “S-1” filing with the US Securities & Exchange Commission (SEC) dated March 22, under the pseudonym “WP Prism Inc.” (a name that refers to major shareholder Warburg Pincus, the private equity group that acquired the company via a leveraged buyout in 2007), Bausch + Lomb says that it will use the proceeds to repay a new $700 million loan.

That loan transaction was completed on March 19, and used to finance a $772 million dividend made payable to its stockholders on the same day, following what is described as strong performance of the business over the past two years.

Warburg Pincus acquired the 160-year-old ophthalmology giant in October 2007 for around $4.5 billion, a purchase price that included $830 million of debt - at which point Bausch + Lomb was delisted from the New York Stock Exchange.

The company had posted sales of $2.3 billion in 2006, ahead of the Warburg Pincus takeover, and the S-1 filing shows that in recent years that total has steadily increased. For 2010, the firm reports sales revenues of $2.58 billion, rising to $2.85 billion in 2011 and $3.04 billion last year.

Mounting debt
But while operating income jumped sharply to $238 million in 2012 (from just $37 million in 2010), those profits were wiped out entirely by huge interest payments on the debt used to finance the initial buy-out.

Even ahead of the latest $700 million loan, Bausch + Lomb’s balance sheet had shown a total debt of $3.3 billion – up from $2.74 billion at the end of 2010.

Though it does not yet set a price or date for the IPO, the filing does include extensive details of the finances of Technolas Perfect Vision (TPV), the Bausch + Lomb subsidiary that has developed a femtosecond laser system for high-precision cataract and refractive eye surgeries.

Earlier this year, Bausch + Lomb had taken over full control of TPV, which is now part of the company’s “surgical” business unit (the other two units being pharmaceuticals, including drugs for a variety of eye conditions, and vision care, which relates largely to contact lenses). The surgical unit also includes intra-ocular lenses.

Bausch + Lomb had set up TPV as a joint venture with 20/10 Perfect Vision in 2009, and sees the multi-purpose “Victus” platform as a key strategic element in the future of its surgical unit. In the S-1, it says:

“Our strategic vision for the ophthalmic surgical business is to become a ‘one-stop shop’ for ophthalmic surgeons by providing a complete product portfolio and to achieve our goal of becoming the clear, comprehensive and compelling alternative to industry leader Alcon.

“We believe that we have achieved substantial professional recognition for our cataract and refractive surgery products as we have built out a more competitive portfolio. Our recent acquisition of TPV makes us an emerging leader on the new frontier of femtosecond laser eye surgery. We intend to leverage our Victus femtosecond laser to sell our entire product line and penetrate competitive accounts.”

Costly ambition
The filing gives an indication of just how costly that ambition has proved, however. In a “going concern” note, auditors Ernst & Young highlighted that TPV would require additional financial support in 2013 to fund its operations after the subsidiary posted a loss of €35.4 million on sales of just over €60 million last year.

On top of other lending, the S-1 filing also shows that Bausch + Lomb granted loans totaling €40 million (known as “laser loans”) to TPV to finance the production of 100 lasers, designed to be interest-free until the end of 2012. But in its “going concern” notice, Ernst & Young said that the parent company would have to waive any servicing of the “laser loans” until June 2013 at the earliest, or TPV would find itself in “financial distress”.

Since acquiring full ownership of TPV, Bausch + Lomb has extended a further €12.9 million to fund operations this year. “Other measures to secure the short and long-term financing of [TPV] are currently being negotiated with Bausch + Lomb,” states the S-1.