Having a troubled past under the name Valeant, Bausch Health Companies (BHC) saw its leverage balloon to extremely high levels, recalls Jim Osman, editor of The Investor's Edge.

As a result, the stock price fell over 90% from its high of $260 in 2015 and forced the company to make major changes including a name change, shedding assets to reduce debt and a spinoff of its eye health segment.

The spinoff was originally expected to be completed by the first quarter of 2021 but has since been pushed to Q3 2021. However, the fact BHC can consider a spinoff in the first place indicates a remarkable turnaround. The Edge is convinced this is one of the most extraordinary re-inventions of the last few years.

• Leading Eye Care Business Trading at Significant Discount:

Bausch & Lomb (SpinCo) will position itself as a vision & eye care business similar to peers Alcon (ALC), Cooper Companies (COO) and Carl Zeiss Meditec (Germany: AFX).

These peers currently command an average FY22E EV/EBITDA multiple of 23.8x currently versus Bausch & Lomb’s 13.3x (at a 56% discount to the peer average);

• Near-Term Catalyst —  Asset Sales:

BHC recently sold its interest in Amoun Pharmaceuticals, an Egyptian pharma unit for $740m (expected to close by June 2021).

Along similar lines, we believe that BHC may also look to sell its Skin Care/Aesthetics business, Solta, ahead of the upcoming Spin. Solta could fetch for $1.9bn (valuing on FY22E deal multiple of 15x on FY22E EBITDA of $125m);

• Potential Sale vs. Spinoff?

While not common, we’ve seen cases in the past where companies announce a spinoff, but then either sell the particular segment being spun off or the entire business was taken over. With activist Carl Icahn building an 8% stake after BHC’s spinoff announcement, we believe other options are being explored.

Overall, in our view, the potential upside pre-spinoff is a base case gain of 53% with a potential bull case gain of +73%.

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