Valeant Pharmaceuticals International has agreed to buy Bausch & Lomb Holdings from Warburg Pincus for $8.7 billion.
The cash deal is set to vault the Canadian company into the upper ranks of the global pharmaceutical sector.
The purchase strengthens Valeant's offerings in ophthalmic pharmaceuticals, contact lenses and lens care products, along with adding ophthalmic surgical devices and instruments to its portfolio.
Bausch & Lomb is by far Valeant's biggest acquisition to date, and will place it roughly among the 15 largest global pharmaceutical companies, Valeant chief executive Michael Pearson said.
"This is a 160-year old company and brand name. I think we'll be able to really leverage that," he said, adding that the deal will boost Valeant's 2013 earnings.
Talks with Bausch & Lomb have been going on and off for a few years but intensified in recent weeks, Pearson said, adding that opthalmology is attractive for its growth prospects and Bausch & Lomb's large proportion of sales directly to consumers is also appealing.
Quebec-based Valeant plans to keep all three of Bausch & Lomb's segments of contact lenses, pharmaceuticals and surgical instruments, said Pearson, putting to bed some market speculation from Friday that the company may seek to sell the surgical instruments arm.
The Bausch & Lomb deal also gives Valeant the large scale of operations that it lacked in China and emerging markets like the Middle East, Pearson said.
The deal, to be financed through debt and equity, will see some $4.5 billion go to an investor group led by Warburg Pincus, with some $4.2 billion used to pay down Bausch & Lomb's outstanding debt.
Warburg Pincus stands to make close to three times its investment in Bausch & Lomb, according to a person familiar with the matter. Warburg Pincus declined to comment.
The deal will be financed with debt and about $1.5 billion to $2.0 billion of new equity, said Valeant, which has secured committed debt financing from Goldman Sachs.
Valeant expects the deal to result in at least $800m in annual cost savings by end of 2014. This will come from job cuts, and savings in purchasing and legal costs, Pearson said.
Bausch & Lomb is expected to generate revenues of about $3.3 billion and adjusted earnings before interest, taxes, depreciation and amortisation of about $720m in 2013.
The transaction, expected to close in the third quarter, is subject to closing conditions and regulatory approvals.
