Investing.com -- Bausch + Lomb (NYSE:BLCO) is exploring a potential sale as part of an effort to resolve issues related to its separation from parent company Bausch Health (TSX:BHC), which is burdened with significant debt, as per a Financial Times report.
The move has faced opposition from lenders, including Apollo Global Management (NYSE:APO).
“This (sale) makes sense to us given the steep valuation discount between BLCO and its closest eye care peers,” said analysts from Wells Fargo (NYSE:WFC) in a note.
The eye care division, spun out of Bausch Health (formerly Valeant) in 2020, is working with Goldman Sachs (NYSE:GS) to gauge interest from potential buyers, with private equity firms expected to be among the interested parties, the report said citing people familiar with the matter.
While any sale would likely come at a premium to current valuations given Bausch + Lomb’s strong performance, the process may not necessarily lead to a deal.
Brent Saunders, the CEO of Bausch + Lomb, has a reputation as a skilled dealmaker, having previously led the $63 billion sale of Allergan (NYSE:AGN) to AbbVie (NYSE:ABBV).
Bausch Health retained an 88% stake in Bausch + Lomb after listing the subsidiary in 2022 and had planned to exchange the remaining shares for Bausch Health stock.
However, concerns arose about whether Bausch Health would remain solvent following the separation, given its heavy debt load. The company would need to pass a solvency test for any spin-off to proceed, the report added.
Bausch Health’s debt amounts to $21 billion, with nearly $10 billion coming due by 2027.
Creditors, including Apollo Global Management, Elliott Management, and GoldenTree Asset Management, had raised concerns about the impact a spin-off could have on the parent company’s balance sheet.
However, major shareholders Carl Icahn and John Paulson have supported the spin-off, as it would give them a larger share in the more profitable eye care business.
A sale to private equity could offer a way forward, allowing Bausch Health to use the proceeds to address its debts while satisfying Icahn and Paulson, who both hold board seats in Bausch Health and its subsidiary.
“We think a significant percentage of the valuation difference is due to the BHC overhang,” Wells Fargo said.
Bausch Health is facing more financial trouble due to the patent for its main drug, Xifaxan, expiring in 2029 and ongoing legal issues with the drug. This has caused its market value to fall to $2.2 billion, raising concerns about the company's financial stability.
Shares of the global contact lens supplier was up 7.7% in pre-open trade on Monday.