By Dave Marino-Nachison (TMF Braden)
April 11, 2000

The Fool last wrote about contact lens and eye care products company Bausch & Lomb (NYSE: BOL) in December, the company shedding the last of its diversified eyewear and healthcare business skin to concentrate on the optical healthcare side of the business. Last year marked the sales of its fashion sunglasses, Miracle Ear hearing aid, and Charles River Laboratories divisions. (The latter supplies purpose-bred animals for biomedical research.)

The immediate-term plan was to initiate stock buybacks. However, as Brian Graney noted last winter, long-term investors considering a company in transition carrying more than $800 million in cash and a bit more debt at the end of the year should be more interested in how the company planned to generate shareholder value through either investment in its own business or through acquisitions.

Fast-forward to today: Tinted contact-lens maker Wesley Jessen VisionCare Inc. (Nasdaq: WJCO) said it is willing to talk to Bausch & Lomb about upping the $34 per share cash bid announced March 23.

Bausch & Lomb apparently thought it had a deal with Wesley Jessen, which Bausch & Lomb wants to round out its contact lens offerings. In fact, according to merger documents, it was Wesley Jessen that initiated talks in November. As late as March 13, the companies were discussing a cash offer in the "high $30s range," which Bausch & Lomb saw as a potential value as the deal might offer annual cost savings of some $30 million. A deal that wouldn't dilute earnings was also a priority for Bausch & Lomb.

But seven days later, Wesley Jessen decided instead to announce its plans to buy Ocular Sciences (Nasdaq: OCLR) and boost its own soft contact lens offerings through an all-stock deal valued at the time at $900 million. In short, Bausch & Lomb was going after Wesley Jessen's specialty lenses, while Wesley Jessen said it coveted Ocular Science's non-tinted line. All three companies were moving from different angles toward the same point.

A jilted Bausch & Lomb spat back with its own offer of $34 per share, a figure most any observer will note is not in the "high $30s range." Neither that, nor Wesley Jessen's prompt rejection of said bid, should surprise anyone as Bausch & Lomb can't have been happy about the Ocular deal. Bausch & Lomb followed up with a hostile tender, hoping Wesley Jessen shareholders would see things their way.

And now Wesley Jessen says it will talk to Bausch & Lomb after all to get its "best proposal," which it would then compare to the Ocular merger. Seems reasonable, but even a Wesley Jessen shareholder would probably sigh upon reading the rest of the company's two news releases today. One mentions that Wesley Jessen stock has traded above $40 recently and some analysts had price targets of up to $45 "even before the accretive Ocular Sciences merger was announced." The other is a well-timed earnings preannoucement citing better-than-expected Q1 earnings thanks to strong disposable lens sales.

It's certainly understandable that Wesley Jessen try to get a better price for its shareholders, and some news services today quoted analysts who have done extensive due diligence of their own and say Bausch & Lomb can support a price in the low $40s without dilution -- and perhaps it can.

I'm going to guess that number is about as valuable to investors as Wesley Jessen's use of analyst price targets as a suggested buyout price for its company. Still, what's been created here is an environment not likely to cool in the near future. Experienced arbitrage investors may choose to try and play the back-and-forth for a few short-term points, but a wait-and-see approach is probably better adopted by Fools.

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