Shares of Bausch + Lomb (NYSE: BLCO) rallied 15.7% as of 3:07 p.m. ET today.
The stock is surging today on news the company is considering selling itself. Of note, Bausch + Lomb is the eye-care subsidiary of Bausch Health Companies, which was formerly known as Valeant Pharmaceuticals.
Bausch Health prefers cash, not shares
Valeant got into trouble nearly a decade ago after using debt to buy up several pharmaceutical companies, then subsequently slashing research budgets and raising prices.
After the debt caught up with the company and the stock plunged, 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.
Over the weekend, the Financial Times reported that Bausch + Lomb was exploring an outright sale. Previously, Bausch Health was planning to spin off the division in a stock-for-stock exchange between Bausch Health and B+L.
But Bausch Health's lenders reportedly pushed back. B+L has been operating more consistently than the overall company, and lenders want to either retain the division or sell it outright for cash.
Of note, Bausch Health Companies is still highly indebted, with about $21 billion in debt. But B+L only has $4.6 billion of that $21 billion in debt on its own balance sheet. Meanwhile, Bausch + Lomb is estimated to provide $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 aren't as consistent, would still be heavily indebted in a spinoff scenario.
B+L could get a big premium
Bausch Health Companies' stock was also up today by 10.7% at the same time, so it seems the market believes B+L would get a good premium to where shares traded yesterday in a sale. That would allow Bausch Health to make a meaningful reduction in its debt.
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Billy Duberstein and/or his clients have no position in any of the stocks mentioned. The Motley Fool recommends Bausch Health Companies. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
