International Hydron Purchase : Allergan to Buy Way Into Contact Lens Production
Allergan Pharmaceuticals Inc. of Irvine has announced that it finally will enter the contact lens manufacturing business with the acquisition of International Hydron Corp. for $155 million in cash, plus other considerations.
The transaction marks at least the fourth attempt by Allergan’s corporate parent, SmithKline Beckman Corp., to enter contact lens manufacturing through a purchase by Allergan, its eye- and skin-care products subsidiary.
With the proposed purchase, “we’ll have a complete line of eye-care service and products that will help drive our business” of contact lens accessories and solutions, said Allergan President William C. Shepherd.
Allergan has been among the few lens and eye-care supply companies that has not supported its product lines by also making lenses, said Joseph Riccardo, managing director of Bear Stearns & Co., a New York securities firm.
“Basically, it’s a company which has been an important factor in all facets of eye care,” Riccardo said. “And calling on ophthalmologists and optometrists and not being in a worldwide (soft lens) market approaching $1 billion is ridiculous.”
Royalties to Continue
In addition to $155 million in cash, International Hydron of Woodbury, N.Y., will receive continuing royalties from a bifocal lens patent and equity interests in three Chinese lens-making ventures that were founded by the company. Martin M. Pollak, chief executive and president of International Hydron, valued the patent and equity interests at more $1 million, but declined to be more specific.
Allergan first tried to buy International Hydron three years ago for $162 million--a deal that fell through when the companies could not agree on final terms. In March, 1985, Allergan again tried to enter the contact lens business through the proposed purchase of American Optical--a transaction that was vetoed by the Federal Trade Commission. A few weeks ago, Allergan was a suitor for Revlon Group Inc.’s Vision Care contact lens business, which it lost to British glassmaker Pilkington PLC.
SmithKline’s eye- and skin-care operations had operating profits last year of $105 million, up 19.3% from $88 million in 1985. Sales last year were about $433 million.
Shepherd declined to discuss how the acquisition will affect earnings. According to Riccardo, “It’s too small to make an impact on SmithKline. But it will have an impact on its eye-care business, and that eye-care business will make an ever-increasing impact on SmithKline” over time, he said.
Cash from the sale should provide a sorely needed shot in the arm for National Patent Development Corp, a New York-based technology company that owns 90% of the common stock of International Hydron. National Patent has been losing money for almost three years, recently reporting a $7.8-million loss for the first half of 1987.
About $10.35 a Share
International Hydron, on the other hand, last year reported net income of $3.5 million on sales of $67 million. If the acquisition is completed, the shareholders who own the 10% of the publicly traded shares will receive about $10.35 a share.
Under terms of the purchase, International Hydron plans to redeem about $40 million in outstanding debentures.
With the sale, National Patent will increase its cash flow by paying down some of its $290 million in debt, said L. Howard Nichol, a vice president with the Advest Group, a Hartford, Conn., securities firm. Nichol predicted National Patent will return to profitability by the fourth quarter of this year.
The acquisition must be approved by the boards of SmithKline, National Patent and International Hydron and is expected to close in mid-October.
