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`Valeant Pharmaceuticals' CEO Hosts Definitive Agreement to Acquire Bausch + Lomb Holdings Conference (Transcript) | Seeking Alpha
`
`Valeant Pharmaceuticals' CEO Hosts Definitive Agreement to
`Acquire Bausch + Lomb Holdings Conference (Transcript)
`
`May 28, 2013 12:20 PM ET
`by: SA Transcripts
`
`Valeant Pharmaceuticals International, Inc. (NYSE:VRX)
`
`Definitive Agreement to Acquire Bausch + Lomb Holdings Conference
`
`May 28, 2013 8:00 am ET
`
`Executives
`
`Laurie Little
`
`J. Michael Pearson Chairman and Chief Executive Officer
`
`Howard Bradley Schiller Chief Financial Officer, Principal Accounting Officer, Executive Vice President and Director
`
`Analysts
`
`Christopher T. Schott JP Morgan Chase & Co, Research Division
`
`Corey B. Davis Jefferies & Company, Inc., Research Division
`
`Annabel Samimy Stifel, Nicolaus & Co., Inc., Research Division
`
`Timothy Chiang CRT Capital Group LLC, Research Division
`
`Marc Goodman UBS Investment Bank, Research Division
`
`Gregory B. Gilbert BofA Merrill Lynch, Research Division
`
`Andrew Finkelstein Susquehanna Financial Group, LLLP, Research Division
`
`Douglas Miehm RBC Capital Markets, LLC, Research Division
`
`David Krempa Morningstar Inc., Research Division
`
`David M. Steinberg Deutsche Bank AG, Research Division
`
`Juan F. Sanchez Ladenburg Thalmann & Co. Inc., Research Division
`
`David W. Maris BMO Capital Markets U.S.
`
`Rebecca M. Forest Piper Jaffray Companies, Research Division
`
`Lennox Gibbs TD Securities Equity Research
`
`Operator
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`Valeant Pharmaceuticals' CEO Hosts Definitive Agreement to Acquire Bausch + Lomb Holdings Conference (Transcript) | Seeking Alpha
`3/14/2016
`Good morning. My name is Steve, and I will be your conference operator today. At this time, I would like to welcome everyone to
`the Valeant Pharmaceuticals Investors Call. [Operator Instructions] Thank you. I would now like to turn the conference over to
`Laurie Little, Vice President of Investor Relations. Please go ahead.
`
`Laurie Little
`
`Good morning, everyone, and welcome to Valeant's investors call regarding Bausch + Lomb acquisition that we announced
`yesterday. Joining us on the call today are J. Michael Pearson, Chairman and Chief Executive Officer; and Howard Schiller,
`Chief Financial Officer. In addition to a live webcast, a copy of today's slide presentation can be found on our website under the
`Investor Relations section.
`
`Before we begin, certain statements made on this presentation may constitute forwardlooking statements. Please see Slide 1
`for important information regarding these forwardlooking statements and the associated risks and uncertainties. Readers are
`cautioned not to place undue reliance on any of these forwardlooking statements. The company undertakes no obligation to
`update any of these forwardlooking statements to reflect events or circumstances after the date of this presentation or to reflect
`actual outcome. In addition, this presentation may contain nonGAAP financial measures.
`
`And with that, I will turn it over to Mike Pearson.
`
`J. Michael Pearson
`
`Thank you, Laurie. Good morning, everyone. Since we announced the acquisition of Bausch + Lomb yesterday, when most of
`our U.S. investors were on holiday, we decided to host this call today. I thank all of you for joining us.
`
`We are very excited about this new opportunity to transform Valeant into a leader in eye health with the acquisition of Bausch +
`Lomb. We are excited about this deal and the opportunity it brings to immediately build our position in the large and growing eye
`health markets around the world, with the portfolio of products, with a wellrespected and highly valued brand name. We have a
`lot to cover on this morning's call. I'll begin with a brief overview of the terms of the transaction, discuss the strategic rationale for
`this acquisition and conclude by walking through our plans for capturing synergies in integrating the 2 companies. Howard will
`then take us through the financial rationale.
`
`Beginning with the terms of the transaction, we have agreed to acquire Bausch + Lomb for a total consideration of $8.7 billion.
`We will pay approximately $4.5 billion to the existing shareholders and take on approximately $4.2 billion of new debt. We
`expect to realize at least $800 million in cost synergies by the end of 2014. We also expect this transaction to be immediately
`and highly accretive to cash earnings per share, with an attractive internal rate of return and cash payback. Fred Hassan, with
`whom many of you are familiar, will join Valeant's Board of Directors upon the close of the transaction. In addition, we are
`pleased to announce that Dan Wechsler, current EVP and President of Bausch + Lomb's Global Pharmaceuticals business, will
`join Valeant as Company Group Chairman, Ophthalmology and Eye Health. Dr. Cal Roberts will also join Valeant as Chief
`Medical Officer, Ophthalmology and Eye Health. We expect to announce other management appointments from Bausch + Lomb
`in the coming weeks.
`
`We have made no secret in the fact that we find the eye health market to be an extremely attractive therapeutic area. And while
`we have been slowly building up our presence here in the U.S., this transaction immediately puts us in a leading position
`around the world. The eye health market has many similar characteristics to the dermatology and aesthetics markets that make it
`a logical one for Valeant to pursue. It is a growing market around the world with durable products. These products have a low
`exposure to reimbursement pressure and have a large cash pay component, both factors that we look for in products and
`markets. There are a number of demographics underpinning the market growth we continue to see around the world. In addition
`to an aging population, which will only increase in the coming years, there is an increased prevalence of diseases that affect eye
`health, including diabetes and cataracts. The rising income levels in the emerging markets also help drive growth. Finally,
`Valeant does not focus on highrisk R&D projects. The eye health market offers exciting opportunities to concentrate more on the
`development activities and less on earlystage research, again similar to our strategy with the dermatology market. Essentially,
`we can put our capital to work in more certain development programs rather than riskier earlierstage discovery. And there
`continues to be a large unmet need in eye health that will create opportunities for continued innovation in the future.
`
`Turning to Bausch + Lomb itself. With pro forma revenue of both companies of over $8 billion and expected synergies of at least
`$800 million captured by the end of 2014, we have been able to make our financial criteria of 20% plus IRR, our first criteria for
`any deals. The company is the leading global health care eye health company with significant presence in all of the major
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`Valeant Pharmaceuticals' CEO Hosts Definitive Agreement to Acquire Bausch + Lomb Holdings Conference (Transcript) | Seeking Alpha
`3/14/2016
`segments of eye health care, including prescription drugs, surgical products and the OTC consumer segment. In addition to over
`3,000 highly regarded sales reps around the world, Bausch + Lomb has a very strong brand name throughout the world in a
`category where brand recognition is very important. We are also delighted with a latestage pipeline that Bausch + Lomb has
`pending. Bausch has 9 nearterm approvals and launches expected in the next few years. Finally, the opportunities in the
`emerging markets are tremendous. Many of the markets that Bausch + Lomb competes in are complementary to Valeant's,
`including Russia, Poland and parts of Southeast Asia. However, through this acquisition, we will also have critical mass in
`additional emerging markets such as China, the Middle East, South Korea and Turkey, which are markets that we have looked
`at but do not have the scale to profitably compete.
`
`Bausch + Lomb operates in 3 major segments: Pharmaceuticals, Vision Care and Surgical. In the Pharmaceuticals segment,
`which includes both prescription and OTC products, they are a Top 4 competitor in prescription and OTC medicines. They have
`a strong product portfolio that includes offerings for the front of the eye, as well as products for most major eye disease
`conditions, such as antiinflammatories, dry eye, antiinfectives and allergies. Several of the upcoming product launches will be
`in the areas of glaucoma and antiinflammatories.
`
`The second segment is the Vision Care division, where Bausch + Lomb is a Top 2 competitor globally in lens care and then the
`Top 4 in contact lenses. This segment has a comprehensive portfolio that includes lens care solutions and contact lenses, which
`includes replacement, disposables and cosmetic options. There are some recent and upcoming launches that could be
`significant, such as the nextgeneration daily and monthly silicone hydrogel lenses. Bausch + Lomb is particularly strong in the
`emerging markets in Asia, Poland and Russia, where the company has a strong selling infrastructure and a wellknown brand,
`both of which will benefit Valeant's existing businesses. In addition, the intrinsic market growth in these regions remains high as
`compared to many developed markets.
`
`Finally, Bausch + Lomb's Surgical unit is in the Top 3 in eye health on a global basis and offers a competitive product portfolio
`across IOLs, or intraocular lenses that are behind the eye, and other devices that support cataract correction and refractory and
`therapeutic procedures. Bausch + Lomb's Surgical business has focused its efforts on expanding their IOL offerings with several
`products in development.
`
`The combined companies will return Valeant to a more balanced revenue mix from both a geographic and therapeutic aspect.
`The overall geographic revenue mix will have the U.S. down to approximately 50% of revenue, with the Eastern and Central
`Europe at about 15% and other developed countries, including Western Europe and Japan, at about 13% of revenue. Latin
`America, Canada, Australia, Southeast Asia and south Africa round up the portfolio in the single digits. From a therapeutic
`perspective, the U.S. will also be better balanced with 34% of revenue coming from our dermatology and aesthetic portfolio,
`32% from our new eye health business, neuro and other at 22%, and our consumer and oral health units at approximately 11%.
`
`Slide 9 outlines our integration approach. As we are a Canadian company, our corporate headquarters will remain in Laval,
`Quebec. We plan to leverage Bausch + Lomb's strong brand name by keeping its name for our ophthalmology and eye health
`business. In terms of integrating our personnel, we intend to select the best of the best between the 2 companies in order to
`build a stronger organization. We have assembled a team to handle integration planning, and we are confident that we will able
`to build on our expertise in this area to execute a seamless integration process with Bausch + Lomb. Dan Wechsler will lead the
`integration planning process, along with tobenamed Valeant personnel. We will build on our experience with previous
`integrations to ensure we properly execute. Ultimately, we expect these actions to result in at least $800 million of annual run
`rate cost synergies between these 2 companies by the end of 2014. As usual, we have not included any cost, revenue or tax
`synergies in this number. Consistent with our structure, the integration process will be executed in a decentralized manner.
`Regional meetings have already been scheduled to begin the process. And again, we will be moving quickly across all of these
`fronts in order to begin delivering the benefits of these synergies to our shareholders after the transaction closes.
`
`Before I turn the call over to Howard, I wanted to touch on our announcement today regarding the status of IDP108. We remain
`excited about the product as both the safety and efficacy data were confirmed by the FDA. We will need to work through some
`CMC issues with the FDA before final approval. We do not know yet the expected approval timing, but we will update you on
`future calls.
`
`I will now turn the call over to Howard.
`
`Howard Bradley Schiller
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`3/14/2016
`Thank you, Mike. As Bausch + Lomb is not a public company and its financials are not wellknown, we thought we will provide a
`brief look at 2013 forecast. The expected full year 2013 revenue from Bausch + Lomb is approximately $3.3 billion, with an
`estimated revenue breakdown of approximately $1.5 billion for the Pharmaceuticals segment, $1.3 billion on the Vision Care
`segment and the remaining $500 million in the Surgical segment. This represents approximately 9% growth over 2012
`revenues. Gross margins for the total company is expected to be around 62% in 2013. And as we mentioned in the press
`release, this business should deliver approximately $720 million in adjusted EBITDA in 2013. We will integrate Bausch + Lomb
`into Valeant's corporate structure, and we expect the deal to be immediately accretive. If this transaction have occurred on
`January 1, this year, and assuming the realization of the synergies, on a full year pro forma basis, the transaction would have
`been approximately 40% accretive to Valeant's expected 2013 cash EPS.
`
`As we mentioned earlier, the total transaction value will be $8.7 billion in cash, and we expect the transaction to close in the third
`quarter. We have committed financing from Goldman Sachs. We expect the debt portion of the financing to be a combination of
`bank debt and bonds. As we mentioned in the press release, we expect to issue between $1.5 billion and $2 billion in equity to
`fund the remainder of the consideration. And the net debt to pro forma adjusted EBITDA will be roughly 4.6x, a slight increase
`from our current ratio of 4.3x. The company continues to be committed to bringing down our leverage to below 4x, and we
`anticipate achieving this target by the second half of 2014.
`
`Our integration planning is now underway. But other than a few highlevel decisions, no final decisions regarding facilities and
`people have been made. Brent Saunders, Bausch + Lomb's current CEO, will remain with Valeant through the integration to
`ensure a smooth transition. We have already identified 2 strong leaders from Bausch + Lomb that will be joining the Valeant
`team, Dan Wechsler and Dr. Calvin Roberts, and we are excited to welcome them. Their valuable expertise will be important to
`the success of this transaction and look forward to their valuable counsel as we move forward. We also expect to be in a position
`to name other members of the Bausch + Lomb's senior management team that will join the Valeant team in the weeks to come.
`Lastly, Fred Hassan will be joining the Valeant Board of Directors upon closing.
`
`In summary, the acquisition of Bausch + Lomb is clearly a significant one for Valeant. We are acquiring a leader in an attractive
`specialty category and with a strong brand recognition around the world. The deal is expected to generate attractive returns for
`our shareholders, consistent with our stated goals for acquisitions. Bausch + Lomb has significant product and commercial
`presence across the major eye health markets and geographies, with a compelling emerging markets opportunity. We expect to
`realize at least $800 million in synergies by the end of 2014, while maintaining a solid balance sheet. Lastly, we believe that the
`Bausch + Lomb organization will be a strong cultural fit with Valeant, showing a similar work ethic and tribe. We are thrilled
`about this new large growth platform what this new large growth platform will mean to the Valeant organization and the
`opportunities to come.
`
`And with that, we'll now open it up for questions.
`
`QuestionandAnswer Session
`
`Operator
`
`[Operator Instructions] And your first question comes from the line of Christopher Schott from JPMorgan.
`
`Christopher T. Schott JP Morgan Chase & Co, Research Division
`
`First question, I'm just trying to understand the cost synergies a little bit better here. It looks like this is something like 50% of
`Bausch's SG&A and R&D based on at least the S1 that's out there. It seems like a very large number for a private equity owned
`asset. Can you just talk about how you're comfortable making this level of cuts in that we're not going to see a top line impact
`from the business to the business as we go through this?
`
`J. Michael Pearson
`
`Chris, thank you. So we have the opportunity to do a bottomsup analysis of both companies together. And the opportunities for
`cost reduction will come from both organizations. And we feel quite comfortable with the number and as we have in prior
`transactions. I think that [indiscernible] is actually focused and the management team focused much more on correcting some
`issues the company had and really investing in a new product portfolio. They made very little cuts over the tenure when they
`owned the business. So and it has a cost structure that's more comparable, I'd say, to a big pharma company than a typical
`specialty company. So we do think there is significant opportunity here, like to change the operating philosophy to more of a
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`Valeant operating philosophy and get the kind of cost structure that we have. Again, we've been able to continue our strong
`organic growth, spending about 20% on SG&A. And I think Bausch is more on the low 40s. So we believe there is significant
`space there.
`
`Christopher T. Schott JP Morgan Chase & Co, Research Division
`
`Great. And just a couple I just had 2 quick followups. When I think about the emerging market infrastructure for the combined
`company, should we be thinking about separate Bausch teams and Valeant teams with a portfolio? Or will there be a single
`sales force in the emerging markets?
`
`J. Michael Pearson
`
`It will depend by country. In some countries, we currently do sell ophthalmology drugs with dedicated sales forces. Poland and
`Mexico would be examples of that. So obviously, with the Bausch + Lomb name, we'll have much stronger brand and generic
`portfolio in terms of brand recognition. So from a sales force standpoint, sometimes, we'll have infrastructure and not have
`infrastructure. In other countries, we will not have infrastructure. But in terms of the country management infrastructure, there is
`no need to have specific country management infrastructure for ophthalmology. So in all countries where we operate, there will
`be significant savings.
`
`Christopher T. Schott JP Morgan Chase & Co, Research Division
`
`Great. And just a last question. I know it's not part of the synergy guidance, but I believe much of Bausch's manufacturing
`appears to be in the U.S., and please correct me if I'm wrong there. But how much of a challenge is getting this asset to your tax
`structure? And how should we be thinking about the combined tax rate for the company post this deal?
`
`Howard Bradley Schiller
`
`Well, we're going to be able just like in Medicis, we're going to be able to integrate it into our structure very, very quickly. There
`is different ways of executing that, and we're sorting that out now right now. The manufacturing they manufacture here, but
`they also manufacture in Ireland, in Europe and other sites. So I don't we don't see that as a challenge. Our tax rate should
`remain in the 5% or so range. Near term and as always, we'll run 5, 6year models. And those 5, 6year models, again,
`assuming no other changes for the company, which is obviously not realistic but it's what we know today, and those our tax
`rates stay singledigit throughout that period.
`
`Operator
`
`Your next question comes from the line of Corey Davis with Jefferies.
`
`Corey B. Davis Jefferies & Company, Inc., Research Division
`
`When you used the 40% accretion to apply to 2013, just curious why you used 2013? And when we're considering '14 and '15,
`should we place a higher emphasis on the greater than 40% phrase? And I have one more after that.
`
`J. Michael Pearson
`
`Corey, we use '13 because also, the OE numbers, we've given for us. So we've given guidance for '13. And we used the
`midpoint of our guidance. And then there are projections and plans for '13 that they've shared with as part of our public
`offering. We have not modeled out '14 and '15 well, we have modeled it up, but we have numbers that we have not disclosed
`to the street. But it will continue to be very, very accretive in the outer years.
`
`Corey B. Davis Jefferies & Company, Inc., Research Division
`
`Okay. And then secondly, you briefly referred to Bausch's latestage pipeline with 9 products. Could you maybe highlight some
`of the things that you're excited about and how the pipeline value factored into your valuation for what you're actually paying
`today?
`
`J. Michael Pearson
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`Sure. We again, we did not attribute a large portion of value. We were very, very conservative in terms of the pipeline, as we
`always are. But we are that does not reflect our either our excitement or confidence in the pipeline. We are quite excited on
`both fronts. It's just the approach we take, as you know, to modeling this out. In the contact lens space, they have a new material
`that they have been working on for the last number of years. They've got they've just got approval for onceaday. And they
`later this year, they're going to get monthly. So we think this new material will make them quite competitive in the market and
`perhaps even a superior material. They just launched a new laser, which is a laser which actually performs 2 functions instead
`of 1 function. And therefore, it's more costeffective and it's actually a stronger, more powerful laser than any of the parts out of
`the market. And then they have a number of pharmaceutical and OTC compounds in the work, including an eye whitening
`compound that could be quite exciting. So they have 6 or 7 that are very, very close. And then behind that, they also have some
`other interesting development opportunities. So I would view their capabilities to be similar to our Dow Pharmaceuticals group,
`where we can come up with new products that are that, again, are more in the development area and less in the research
`area.
`
`Corey B. Davis Jefferies & Company, Inc., Research Division
`
`Great. And I'd like to get 1 more quick one. Your selfimposed 4x debttoEBITDA ratio, now that you're much bigger, more stable
`company, is that ratio something that is less important at 4x going forward as we think about new deals and your ability to raise
`debt?
`
`Howard Bradley Schiller
`
`You're right. We're much a bigger company. We're quite diversified, both geographically, as well as from a product point of view.
`And our focus is on maintaining access to capital throughout the cycle at reasonable rates, and we continue to evaluate what
`that right ratio is. At this point, we're committed to getting it down below 4x. The combined cash flow generation of existing
`Valeant plus Bausch is quite, quite strong that it gives us a lot of flexibility to pay down debt but also leaves us flexibility to
`continue the tuckin acquisitions around the world in various therapeutic categories.
`
`Operator
`
`Your next question comes from the line of Annabel Samimy from Stifel, Nicolaus.
`
`Annabel Samimy Stifel, Nicolaus & Co., Inc., Research Division
`
`You mentioned that you hadn't put any gross margin expansion assumptions. Is there opportunity for gross margin expansion?
`And can you also talk about what you see as some of the most attractive franchises given the 3 that you have there:
`Pharmaceutical, Vision Care and the Surgical products?
`
`J. Michael Pearson
`
`Sure, Annabel. Yes, we do believe there will be a significant opportunity for gross margin improvement. But I think what we've
`seen it's only been in the past year that we've really been able to achieve some real improvement in the old Valeant business
`based on some of the acquisitions that we have made 2, 3 years ago. So it takes a little bit more time. And so we do feel there is
`some real opportunity over time to get them, but we have not modeled those in terms of shortterm synergies. So that's an
`example. In terms of the businesses we're buying, the one that's obviously most exciting is the Pharmaceutical, the management
`team Brent and his team have done and Cal have done a great job of building returning that business to growth and
`building a very nice pipeline and growing that business. It generates, by far, the most profits for Bausch + Lomb. And so that's
`sort of the jewel of the 3 businesses. But we're quite excited about the other 2, and we think both the other 2 are poised to show
`some real improvement over the next few years.
`
`Annabel Samimy Stifel, Nicolaus & Co., Inc., Research Division
`
`Okay. Just following up on the gross margin issue, is that going to impact your overall corporate gross margin going forward? Or
`should we just assume the typical gross margin?
`
`J. Michael Pearson
`
`I think if you look at their S1 or if you look at our statements, they have a lower gross margin.
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`Howard Bradley Schiller
`
`Yes, they're about as I mentioned, they're about 62%. So if you blend that in with our current gross margins, obviously, that will
`bring it down. And then as Mike said, we'll have to work to identify opportunities to build on that.
`
`Annabel Samimy Stifel, Nicolaus & Co., Inc., Research Division
`
`Okay, great. And then if I could follow up on the emerging markets, you mentioned this brings you into China, Asia and Japan
`and some of the markets that you hadn't in the past want stated that you want to be in just because it was overcrowded. So is
`this a change in your emerging market strategy in general?
`
`J. Michael Pearson
`
`No. I think on the emerging markets, Japan is a country where it's a developed nation, obviously. Population growth is
`declining. But eye health is pretty attractive there, so we'll need to review that. We'll need to evaluate Japan. But it's been a very
`good market for Bausch. In terms of the emerging markets, China is a market that we've always said that it's a great market. But
`we're not going to compete there as a subscale company. And then I think ophthalmology is a very concentrated market
`segment. And Bausch + Lomb has a very strong franchise in China that's growing and highly profitable. So it allows us to get into
`China in a way that we will have critical mass. And from there, we can start building out our dermatology capabilities in China.
`That's similar to Turkey. It's similar to some of the other markets. Argentina is another market. South Korea, which is a big
`aesthetics market, which we're not in. So there is...
`
`Howard Bradley Schiller
`
`Middle East.
`
`J. Michael Pearson
`
`No, the Middle East is the other one. So it's going to expand our ability to sell a lot of the products that Valeant currently has in
`these new markets for us.
`
`Operator
`
`Your next question comes from the line of Tim Chiang from CRT Capital.
`
`Timothy Chiang CRT Capital Group LLC, Research Division
`
`Mike, in looking at this significant cost synergy figure that you guys are targeting, how much overlap do you guys really have
`outside the U.S. with your infrastructure relative to Bausch's infrastructure? Is there any sort of color you could provide there?
`
`J. Michael Pearson
`
`Well, in some countries, it's quite a bit. I just mentioned a number of countries where we're not in them, like China and the Middle
`East. So there is very little to no infrastructure overlap. But in a lot of our core markets, in Mexico, in Brazil, in Poland, in Russia,
`in some of the Southeast Asian countries, we both have fully functioning sort of divisions. And we don't need fully we need
`one. We don't need 2. So if you think all of the support functions that we have in these countries, the finance, the back office, if
`you think of some of the marketing and you think of sort of reimbursement, if you think about the distribution to the extent there is
`managed care, all those types of functions are duplicative. So there is significant there are significant savings there. The
`second piece of it is Bausch + Lomb had a global a number of global functions. And we operate in a decentralized fashion. So
`we don't have global functions. We allow each of the regions to operate somewhat independently. And so there's a there is
`sort of global infrastructure throughout the world that also we'll be able to take advantage of the synergies there.
`
`Timothy Chiang CRT Capital Group LLC, Research Division
`
`Mike, just maybe one followup. In looking at the 3 key segments, certainly Pharmaceutical has been the fastestgrowing
`segment, but Vision Care and Surgical seem to be pretty slowgrowth markets. I mean, is that something that you guys looked at
`pretty closely? What do you think you guys can do to rejuvenate the growth on those 2 segments?
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`J. Michael Pearson
`
`Well, the markets themselves are actually growing. Okay, Vision Care is projected to grow about 4% per annum for the next 5
`years, and Surgical is actually projected to grow 7%. So the first thing we had to do is make sure we get our fair share of the
`market growth. And then hopefully, we'll do a bit better than that. I think it certainly fits our model of mid to highsingle growth
`that we're looking for organic growth in our businesses.
`
`Howard Bradley Schiller
`
`And this, Mike, is where the Bausch investment in new products in both Surgical and in lenses should really pay off.
`
`Operator
`
`Your next question comes from the line of Marc Goodman with UBS.
`
`Marc Goodman UBS Investment Bank, Research Division
`
`What does this deal mean for the merger of equals strategy? Obviously, you were pursuing that and that was your main focus.
`So was does it mean for that? And then second, is there more to consolidate in the eye care space? Are you moving to another
`kind of specialty area? And if so, what's some other specialty areas that are of interest to you?
`
`J. Michael Pearson
`
`Yes. So we have talked a little bit about the merger of equals. It seems to have gotten a lot of interest in the investment
`community. This is not a merger of equals. We are this is a cash transaction. It's an acquisition. We will, as Howard mentioned,
`raised some equity from a balance sheet standpoint. The merger of equal remains an opportunity for us, right time, right place.
`We've always mentioned mergers of equals are a lot harder to predict any kind of timing. The merger of equal would be highly
`delevering transaction. So we, certainly, are not we'll certainly continue to explore and need to have discussions. And we
`hope that it will eventually be part of the playbook. But this is not one that we view to be a merger of equals. I'm sorry. What,
`Marc, was your second question?
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`Marc Goodman UBS Investment Bank, Research Division
`
`Well, second was, when you look at eye care