Shares in Bausch Health Companies spiked 18% as the Canadian drugmaker announced a plan to spin off its eye health care business, Bausch + Lomb, into an independent publicly traded entity.
The stock soared to $22.91 in morning market trading on Thursday. Bausch (BHC) said that the split-up would create two companies, one of which would consist of global vision care, surgical, consumer and ophthalmic Rx businesses that generated $3.7 billion in revenue in 2019. The other company would be a diversified pharmaceutical company with a portfolio of durable brands across the Salix, International Rx, Solta, neurology and medical dermatology businesses with about $4.9 billion in sales in 2019.
The timing of the spinoff will be tied to certain conditions and approvals, and the completion of several important actions, including the reorganization of the reporting segments, which the company expects to begin releasing in the first quarter of 2021.
“We are committed to taking action to unlock what we see as unrecognized value in Bausch Health shares, and we believe that separating our business into two highly focused, stand-alone companies is the way to accomplish that goal,” said Bausch CEO Joseph C. Papa. “We have divested $4 billion of non-core assets, paid down over $8 billion of debt, resolved numerous legacy legal issues and managed a loss of exclusivity on an approximately $1.4 billion product portfolio, while also investing in R&D, new product launches and core franchises with attractive growth opportunities.”
“We believe that the time is right to begin the separation process, so each business has greater flexibility to pursue strategic opportunities in their respective markets,” Papa added.
Earlier this week, H.C. Wainwright analyst Ram Selvaraju reiterated a Buy rating on the stock with a $64 price target (198% upside potential) following the successful resolution of the investigation by the US Securities and Exchange Commission (SEC) regarding Bausch’s former relationship with Philidor Rx Services and a number of its accounting practices, policies and public disclosures relating to the 2014 and 2015 reporting periods.
As part of the resolution, Bausch agreed to negligence-based charges only and will need to pay a $45 million civil penalty.
“From our vantage point, the final resolution of such a long-running investigation effectively puts an end to one of the most troublesome issues that had plagued Bausch Health’s reputation and eliminates any risk that the Philidor controversy might have resulted in a huge fine,” Selvaraju wrote in a note to investors.
The analyst added that he believes that Bausch + Lomb remains “the jewel in the crown of the company”.
Overall, Wall Street analysts have a cautiously optimistic outlook on the stock. The Moderate Buy consensus shows 4 Buys, 2 Holds, and 1 Sell. With shares down 27% year-to-date, the $27.86 average price target implies 30% upside potential to current levels. (See BHC stock analysis on TipRanks)
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