Why Bausch + Lomb came together today

Actions of Bausch + Lomb (BLCO 15.76%) is up 15.7% as of 3:07 PM ET today.

Shares are rising today on news that the company is considering a sale. Of note, Bausch + Lomb is the eye care subsidiary Bausch Health Companieswhich was previously known as Valeant Pharmaceuticals.

Bausch Health prefers cash, not stock

Valeant ran into trouble nearly a decade ago after it used debt to buy several pharmaceutical companies, then slashed research budgets and raised prices.

After debt caught up with the company and the stock crashed, management was changed and the company changed its name to Bausch Health in 2018. In 2022, the company sold part of its stake in Bausch + Lomb to the public in an initial public offering. (IPO), raising $630 million. However, Bausch Health still retains an 88% stake in B+L.

At the weekend, the Financial Times reported that Bausch + Lomb was exploring an outright sale. Bausch Health previously planned to spin off the division in a stock exchange between Bausch Health and B+L.

But Bausch Health’s creditors would have rejected it. B+L has performed more consistently than the entire company, and creditors want to either keep the division or sell it outright for cash.

Of note, Bausch Health Companies is still heavily indebted, with about $21 billion in debt. But B+L has only $4.6 billion of that $21 billion on its own balance sheet. Meanwhile, Bausch + Lomb is expected to deliver $4.7 billion in revenue and $860 million in EBITDA (earnings before interest, taxes, depreciation and amortization) this year. Therefore, the remaining Bausch Health companies, which are not as consistent, would still be heavily indebted in a spin-off scenario.

B+L could get a big premium

Shares of Bausch Health Companies were also up 10.7% today at the same time, so it appears the market believes B+L would receive a nice premium to shares trading yesterday in a selloff. This would allow Bausch Health to significantly reduce its debt.