Advanced Medical may become a buyout target

Advanced Medical Optics Inc. (NYSE:EYE), which has grown through acquisitions for years, now may become a buyout target itself once its bid for Bausch & Lomb Inc. (NYSE:BOL) fizzles because of the recall of its MoistureLoc contact lens solution.

Piper Jaffray & Co. analyst Mark Mullikin raised a good point about the recall in an interview with Bloomberg News.

"The recall increases their financing costs,'' he said. "I don't know that Advanced Medical shareholders will be willing to swallow that, and Bausch & Lomb shareholders are less likely to want to take Advanced Medical stock as part of the deal.''

Advanced Medical, which got about 11% of sales from the recalled cleaner, wouldn't be able to top Warburg Pincus LLC.'s $3.67 billion, or $65 a share, offer for Bausch & Lomb without without using stock since its market cap is smaller than its rival.

Shares of the Santa Anna, Calif.-based company plunged on news of the recall. Advanced Medical also withdrew its forecast calling for profit excluding costs of $1.40 to $1.55 a share this year.

The company has painted itself into a corner that it can only get out of with a white knight of its own.

If the merger makes as much as much sense as some on Wall Street suggest, why wouldn't Warburg or another buyout firm snap up both companies?

Last week, Advanced Medical sounded a more optimistic tone, saying a deal with Bausch & Lomb made sense "given the complimentary nature of our two businesses."

But that was then and this is now.