Laval, Que.-based Valeant Pharmaceutical will acquire Bausch & Lomb in a transaction that Valeant says will achieve $800 million in cost savings by the end of next year.
Bausch + Lomb has numerous eye care product lines, including contact lenses, surgical goggles and eye drops. The company expects to take in $3.3 billion next year across all of its product lines.
Rumours of a deal between the two companies first emerged late last week. Analyst David Krempa of Morningstar said then that Valeant had been talking for about a year about wanting to get into the ophthalmology market.
Valeant says the acquisition will position the company to take advantages of opportunities in the eye care field that are only increasing owing to the aging population and an increase in the incidence of diabetes.
Neil Maruoka, an analyst with Canaccord Genuity in Toronto, said Valeant typically uses a lot of debt to fund its acquisitions but that the company will be able to tap Bausch + Lomb's large cash flow.
"The strategic fit is excellent, and Bausch + Lomb has a strong growth profile that Valeant would also be looking for," Maruoka said in an interview Monday.
Valeant will finance the transaction through a combination of debt and up to $2 billion of new shares.
Investors cheered the move, pushing Valeant shares up more than 10 per cent to an all-time high of $95.82 in afternoon trading on the TSX Monday.