The stock hit $90.17 before closing at $87.02, up $10.18 or 13.25 per cent Friday on the Toronto Stock Exchange.
The Wall Street Journal and Bloomberg reported that Valeant (TSX:VRX) was close to a deal to acquire Bausch and Lomb for about $9 billion.
Valeant manufactures and sells a broad range of drugs primarily in the areas of dermatology, neurology and branded generics.
The company did not immediately return requests for comment.
Analyst David Krempa of Morningstar said the acquisition fits with Valeant's strategy and would give it another growth platform.
"It's not too surprising because Valeant, for the last year or so, has been talking about how they want to get into the ophthalmology market," he said in an interview.
Krempa added that Valeant has indicated that it was looking for a deal valued at $5 billion to $10 billion.
He expects Valeant would use the same strategy it followed in building its dermatology business — use Bausch as a platform for further expansion.
Valeant can also reduce costs by selling the products through its existing sales force.
While the deal is expected to bring significant tax savings, operational cost synergies won't likely be as large as in past deals because it doesn't have a large presence in ophthalmology, said Krempa.
The acquisition would put Valeant in competition with established players like Novartis, Allergan, and Johnson & Johnson, which lead Bausch & Lomb in most product categories, he said.
"While we think the ophthalmology industry will present some attractive opportunities for Valeant, we would not expect it to rise to a dominant position as it did in dermatology," Krempa wrote in a report.
Valeant attempted to purchase Ista Pharmaceuticals in early 2012, but was outbid by Bausch & Lomb. It acquired EyeTech in February 2012 for an undisclosed price and then bought the Visudyne product line from QLT Inc. in late 2012 for a little more than $100 million.
Krempa said the Bausch & Lomb transaction would likely be paid mostly in stock because of Valeant's high debt following its purchase of Medicis.
A share dilution may trouble some shareholders, but the run-up in the company's share price should offset some of those concerns, he added.
Bausch and Lomb is owned by private equity investment firm Warburg Pincus, which bought the company in 2007. It sells wide range of drugs and contact lens products.
Warburg Pincus and Bausch and Lomb declined comment on the report.