And then there were four.
Earlier this month, Lake Forest-based Cooper Cos. finally wrapped up its $1.2 billion buy of Concord-based rival Ocular Sciences Inc.
The deal vaults Cooper, which had sales of $490 million for the 12 months ended Oct. 31, to the No. 3 spot in the global contact lens market.
And Cooper soon could pass No. 2 Ciba Vision, a unit of Switzerland’s Novartis AG. Johnson & Johnson’s Vistakon unit, which includes the Acuvue brand, is the largest player.
With Ocular in the fold, Cooper is moving ahead on integrating the two businesses and continuing its focus on specialty contact lenses.
“We believe we will continue to grow faster than the market, which we have been doing on the Street for quite a few years,” said A. Thomas Bender, Cooper’s chief executive.
Cooper’s stock, which was trading at around $55 when the deal was announced six months ago, has been on a steady upward ride in late 2004 and early in 2005.
The company’s shares were trading at about $70 last week with a market value of $3.1 billion.
Ocular and Cooper “are basically marketing to the same customer around the world,” Bender said. “In some markets in the world, we are very strong. And in certain markets of the world, they were stronger than we were.”
Cooper is big among eye doctors, while Ocular’s lenses are more commonly found in chains such as LensCrafters Inc.
That buy means Cooper is upping the portion of commodity lenses in its sales mix. Thanks to sales of special lenses for astigmatism, dry eyes and even for a change of eye color, Cooper’s gross profit margin was 64% in the most recently ended quarter, a bit higher than Ocular’s 59%.
Analysts aren’t worried.
Cooper should have better gross margins as a result of the acquisition, according to Steve Hamill of U.S. Bancorp Piper Jaffray in Minneapolis. That’s thanks to Ocular’s advanced production and Cooper’s entry into a new market, silicon hydrogel contact lenses.
The company also should gain from Ocular’s business in Japan and Europe, according to Suey Wong, Jeff Johnson and Richard Tepe, analysts with R.W. Baird & Co. of Milwaukee.
Ocular should boost Cooper from “a fairly weak No. 4” in Japan and the rest of Asia, Bender said.
“That’s where our expanded growth will come from over the next five years,” he said. “That’s one of the reasons we bought Ocular.”
The deal also should bring savings to Cooper, Bender said.
“We’ve got a lot of duplication and redundancies in expenses that we’re taking out of the business, about $50 million worth over the next three years,” he said.
Last week, Cooper said it plans to close its contact lens plant in Huntington Beach, something that would have happened regardless of the Ocular buy, according to Bender. The plant makes custom lenses.
“We were going to phase out that manufacturing and move it to Rochester, (N.Y.), anyway, because it’s a declining part of our business and it’s hard to justify two manufacturing facilities,” Bender said.
Thanks to the Ocular buy, Cooper now has seven plants that make custom lenses. That figure stands to be cut to three in the next two years. Rochester, a French plant and one in Australia are set to stay, Bender said.
Cooper is cutting some 24 customer service jobs locally and already has pared 30 U.S. sales jobs from the two companies.
The company stands to have about 35 people at its executive offices in Lake Forest once the integration is done. Companywide, Cooper expects to have some 7,000 workers worldwide, up from about 4,000 before the Ocular buy.
The combination, which took months to clear regulatory scrutiny, actually was years in the making. Ocular Sciences’ founder, John Fruth, had been talking about a combination since 1999, according to Bender.
Fruth is joining Cooper’s board of directors.
Cooper had hoped to close the Ocular buy by November, something that didn’t end up happening until earlier this month.
“It couldn’t have been done any earlier than the middle of November,” Bender said. “It was impossible to do that because the two companies competed in the same space, so the (Federal Trade Commission) is always going to take its time.”
The delay, Bender said, allowed Cooper to work out its plans to integrate Ocular.
“If there was a rainbow on this somewhat of a delay, it’s the fact that we were really in position to execute the planning process of knowing what to do,” Bender said.
Between now and 2007, Bender said Cooper plans to launch nine products. Details are expected at an analysts’ meeting this week.
The buy also could have an impact on management. Cooper is set to announce this week that a member of Ocular’s executive team is coming to its Bake Parkway corporate office.
The combination is allowing Cooper to improve its succession planning process, said Bender, who turns 66 next month.
“We have stronger backups in key jobs,” he said.
Cooper has no plans to spin off its other business, CooperSurgical, which makes gynecological devices and is small compared to the company’s dominant CooperVision contact lens arm.
“We’re not going to do that now because the company drives an awful lot of cash,” Bender said
CooperSurgical isn’t much of a factor for Chris Cooley, an analyst at Cleveland’s FTN Midwest Research.
“The real engine for the long-term growth, both in terms of revenue and earnings, is vision,” he wrote in a report last year. “With women’s health, although it’s a huge opportunity longer-term, your organic growth rates within the businesses that (Cooper) addresses are much more in the mid-single-digit range, 5% to 8%.”
In their report, Baird analysts Wong, Johnson and Tepe warned Cooper could face greater competition for acquisitions in the women’s healthcare market. Since 1995, Cooper’s acquired 25 businesses and folded them into CooperSurgical.
“Major healthcare companies such as Johnson & Johnson have become more active in consolidating this diverse industry,” they wrote. “The growing presence of these major companies could begin to drive up prices for the numerous targets in this fragmented market, potentially forcing (Cooper) to pay more for transactions that would have previously been paid.”
