Strategic Expansion: A New REIT Spinoff Set to Transform the Commercial Real Estate Landscape
$BLCO
Bausch + Lomb Corporation (NYSE: BLCO), a leading global supplier of contact lenses, is reportedly considering a sale as it navigates challenges related to its separation from parent company Bausch Health Companies Inc. (NYSE: BHC). This potential move is part of a broader strategy to address creditor concerns amid Bausch Health’s significant debt issues. The parent company, which faces a substantial $21 billion debt burden—part of which is due by 2027—retained an 88% stake in Bausch + Lomb following its 2022 public listing.
The full execution of the separation has been complicated by solvency concerns post-split. Goldman Sachs is advising on the sale discussions, aiming to assess interest from private equity firms. Bausch + Lomb, valued at over $10 billion, is the world’s largest contact lens supplier.
For the second quarter of 2024, Bausch + Lomb reported a notable increase in sales, reaching $1.22 billion—a 17% rise from the previous year and surpassing the expected $1.17 billion. Additionally, its adjusted earnings per share (EPS) of $0.13 exceeded the consensus estimate of $0.12. Looking ahead, the company projects its 2024 sales to be between $4.7 billion and $4.8 billion, which is higher than the anticipated $4.66 billion.
The potential sale of Bausch + Lomb could attract a higher price, as suggested by a Financial Times report. Approximately 60% of the company’s revenue comes from its contact lens and eye drug divisions. Despite these positive financial figures, creditors such as Elliott Management and GoldenTree Asset Management have expressed concerns about the impact of the spin-off on Bausch Health’s financial stability.
Prominent shareholders, including Carl Icahn and John Paulson’s Paulson & Co., have supported the spin-off, recognizing the potential benefits of holding a larger stake in the more profitable eye care subsidiary. Complicating the situation for Bausch Health is the impending patent expiration of its leading drug, Xifaxan, expected by 2029. To address this, the company is actively promoting RED-C, which is in late-stage development, to mitigate potential market loss.
Xifaxan is currently approved for preventing the recurrence of hepatic encephalopathy (HE), and there is a possibility that generics could be used off-label for initial prevention if RED-C receives approval. Amid these developments, Bausch Health’s stock has declined by 13.2% year-to-date, while Bausch + Lomb has seen a modest increase of 4.2%. The last recorded trading price for Bausch + Lomb was $17.80, reflecting a 14.40% increase. These financial and strategic developments highlight the complexities faced by Bausch + Lomb as it seeks to stabilize and potentially enhance its market position amidst ongoing creditor negotiations and operational challenges.
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