By Maha Farooq – Equity Analyst
Alcon Research, LLC entered into a definitive agreement to acquire LENSAR, INC on march 23, 2025 from North Run capital at a valuation of approximately $180 million. Alcon will purchase all the outstanding shares of LENSAR for $14.00 per share in cash along with an additional non-transferable contingent value right (CVR) that might deliver up to $2.75 per share in additional cash if certain post-closing milestones are achieved.
Additionally, the agreement also includes an $8.5 million termination fee payable by LENSAR if conditions are met. There is a commitment from both the companies and the deal is expected to move forward within the next 6 months.
The acquisition has received approval from the board of directors of both companies and remains subject to regulatory review by FTC as well as formal approval of LENSAR shareholders. Approximately 15,983,846 shares were voted in favor. The transaction is currently expected to close in mid-to-late 2025 or 2026.
In evaluating the regulatory risks surrounding this deal, after considering the current situation in the U.S antitrust environment and based on recent merger-arbitrage transactions reflecting a lenient stance by FTC during the Trump-era, this deal has an 80% chance of being successful in our opinion. Therefore, while this transaction did undergo an additional review request, however, the regulatory climate remains favorable and the probability of approval appears higher than what the market had initially priced in.
As part of this assessment, we used Ben Graham formula and conducted a special situation analysis, that shows a favorable outcome for shareholders if the deal goes through as proposed. However, it still has a 20% chance of a failure in that scenario the shareholders will be worse off, holding a loss-making business and might have to wait longer before they could exit.
Situation Analysis
- NAV Calculation FY 2025
[NAV = (Total Assets – Total Liabilities) / Shares outstanding]
Total Assets = $70,200,000
Total Liabilities = $96,110,000
No of shares outstanding = 12,000,000
Net Asset Value per share = -$2.16
Discount
Share Price = $11
NAV = -$2.16
Discount/Premium = ($11 / -$2.16) – 1 = -5.09 – 1 = -6.09
The company is selling at premium relative to its NAV
Using Benjamin Graham’s special situation formula to calculate expected (loss)/gain
Indicated annual return = GC – L (100% – C)/YP
Where,
Let G be the expected gain in points in the event of success;
L be the expected loss in points in the event of failure;
C be the expected chance of success, expressed as a percentage;
Y be the expected time of holding, in years;
P be the current price of the security.
Let’s assume 80% probability of success due to strong board and shareholder approval based on strategic fit between the two companies and the post Leena Khan, and Trump era FTC which has a higher approval rate for mergers and acquisitions.
Expected Gain
Gain = Expected future price – current price
($14 – $ 11) = $3
3 x 80% = 240
Possible loss
Let’s assume a 20% chance of loss
Loss= Loss chance – current price
20 – $11 = $9
If the plan fails the stock will drop and will trade at $9 per share
$11 – $9 = $2
2 x 20% = 40
Expected gain – Expected loss
240 – 40 = 200
200 / 11 = 18.18% Expected return
The odds of losing are less than winning
Furthermore, let’s assume the deal goes through in 6 months instead of 1 year (0.6 x 11 = 6.6)
200 / 6.6 = 30.3% Expected gain in 6 months
Therefore, if the deal goes through in 6 months it will yield 30.3% instead of 18.18%
And if only possible gains were to be considered then:
3×80%=2.4
2.4/11*100=21.81%
If the new investors decide to go with this approach, then it is important, they regularly review the situation and stay informed about any changes in the FTC decision.
On the other hand, if the deal does not go through shareholders of LENSAR remain stuck as the company currently is struggling with negative equity and continues to report negative profits indicating ongoing financial strain as well as limited ability to create value on its own.
And if the deals go through, Alcon is offering a significantly higher price than the company’s current share price, representing a potential upside opportunity for shareholders. The price being paid in the deal provides an attractive exit and reduced risk in a short time.
In conclusion the Alcon-LENSAR transaction represent a compelling special situation opportunity for event driven investors. The deal has a strong support and approval by the board as well as shareholders with a clear strategic rationale and a more permissive Trump-era regulatory environment with high chances of success.
Disclaimer
The information provided by Moods Investment Research is for general informational and educational purposes only. It is not intended as, and does not constitute, financial, investment, tax, legal, or other advice. The content is not a solicitation or recommendation to buy, sell, or hold any securities or investment strategies.
All opinions expressed are based on current analysis and are subject to change without notice. While we strive for accuracy, Moods Investment Research
makes no representation or warranty as to the completeness, accuracy, or reliability of any information provided. Investing involves risk, including the possible loss of principal. Past performance is not indicative of future results. You should conduct your own research and consult with a qualified financial advisor before making any investment decisions.
Moods Investment Research and its founders, directors, or affiliates are not liable for any losses or damages arising from any reliance on the information provided.
The views expressed in this article are those of the author(s) and do not constitute investment advice. Including any editors or contributors (collectively referred to as “Moods and directors”), does not hold a position in LENSAR or any other securities mentioned. Any such holdings are subject to change without notice.