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ValueAct rejects Bausch & Lomb buyout

US-headquartered hedge fund ValueAct Capital has said it opposes an offer by Advanced Medical Optics (AMO) to buy out ophthalmic competitor Bausch & Lomb

US-headquartered hedge fund ValueAct Capital has said it opposes an offer by Advanced Medical Optics (AMO) to buy out ophthalmic competitor Bausch & Lomb.

In a letter published on 10 July to AMO's CEO James Mazzo, ValueAct expressed opposition to the proposed deal. If the acquisition reaches a vote, the company threatened to vote its 8.8m shares, or 14.7 per cent of the company, against the deal.

ValueAct brought said the acquisition would increase business risk by further concentrating cash flows in contact lenses, which it believes is a less desirable business than AMO's surgical operations.

The required debt financing would also reduce the company's margin for error and subject shareholders to significant capital markets risk. The proposed transaction raises substantial regulatory risk, the firm added.

ValueAct said it was mostly worried by execution risk and was concerned that management would not deliver on potential synergies. Mazzo said the acquisition would stretch management resources and require a team of external advisers to help integrate the two companies.

In an interview with the Financial Times on 12 July, Jeffrey Ubben, managing partner of ValueAct, said: "We were sceptical but happy to go do some work and that is as far as it went. How they can say we offered money is beyond me."

Ubben, a former manager of the Fidelity Value Fund, added that he did not think other Advanced Medical shareholders would support the Bausch & Lomb bid.

ValueAct currently has more than USD 5bn in assets under management and has large stakes in news service Reuters and software company Acxiom.

Shares in Bausch & Lomb fell 1.3 per cent to rest at USD 67.92, as the anticipated bidding war failed to materialise. UBS Warburg offered USD 65 per share in cash, while AMO offered a mix of cash and stock worth USD 75 per share.

18th July 2007

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