FOOL PLATE SPECIAL
An Investment Opinion
Novartis Rides to Wesley Jessen's Rescue

By Dave Marino-Nachison (TMF Braden)
May 30, 2000

In the parlance of mergers and acquisitions, the term "white knight" has come to represent -- in the words of Barron's Finance & Investment Handbook (3rd ed.) -- a "friendly acquirer sought by the target of an unfriendly takeover."

To read the back story of the merger discussions between eye care products makers Bausch & Lomb (NYSE: BOL) and Wesley Jessen VisionCare (Nasdaq: WJCO), there might be some confusion as to whether they were "unfriendly." Though Wesley Jessen technically offered itself for sale to unsolicited suitor Bausch & Lomb earlier this month, it was clear Wesley Jessen wasn't trying to make such a deal easy.

And so it's probably fair to call Swiss healthcare products giant Novartis AG (NYSE: NVS) a "white knight"; this morning, Novartis announced an agreement to buy Wesley Jessen for $38.50 per share in cash -- about $785 million. (Novartis' American depositary shares began trading on the NYSE just this month.) Merger documents haven't been filed with the SEC yet, so we don't have information on the discussions between the companies, but it's quite likely Wesley Jessen was so brazen with Bausch & Lomb because it knew Novartis was in the wings.

The new company will be formed out of Wesley Jessen and Novartis' CIBA Vision contact lens, lens care products, and ophthalmic pharmaceuticals division. CIBA Vision, according to Reuters, had 1999 pro forma sales of $1.4 billion; Wesley Jessen's revenues were about $312 million last year. Combined, the two would still probably be a hair below Bausch & Lomb in terms of revenues. Novartis, all told, had some $20 billion in 1999 sales.

"CIBA Vision is offering an all-cash premium which clearly exceeds Bausch & Lomb's best and final offer," said Wesley Jessen Chairman and CEO Kevin Ryan, "and the business will immediately benefit from our significantly expanded size and global reach."

"The merger of the two businesses is expected to increase their growth potential," said CIBA Vision CEO Glen Bradley. "Wesley Jessen will be able to expand its international sales with the support of CIBA Vision's global sales and marketing operation, and CIBA Vision will benefit from Wesley Jessen's technological expertise, especially in the area of specialty lenses." (Bausch & Lomb wanted Wesley Jessen for the same reasons.)

One wonders whether all this might have been unnecessary. According to Bausch & Lomb, it was more than willing to pay something in the upper $30-per-share range for Wesley Jessen before the latter suddenly and unexpectedly eloped with Ocular Sciences (Nasdaq: OCLR). That surprise is likely what led Bausch & Lomb to make $35 and change its final offer for the company. So why was all this necessary? It's hard to say, and that's why playing the merger guessing game can be difficult for investors.

But this story, assuming it goes through -- the deal is expected to close in Q3 -- ended up a happy one for Wesley Jessen stockholders. Though they had reason to believe they might get more than Bausch & Lomb's stated price for their shares, they never bid the stock above that level and avoided any downside risk had no better deal come along. It wasn't as happy an ending for Ocular Sciences shareholders, whose company lost some 12% of its market value this morning. Ocular Science's business had too much overlap to keep, analysts told Bloomberg. The company will, however, get a cool $25 million from Wesley Jessen for the inconvenience.

Related Links: