SCHEDULE: Broadwood Opposes STAAR Surgical Acquisition by Alcon

STAAR Surgical's largest shareholder, Broadwood Partners, announces its intent to vote against the proposed acquisition by Alcon Inc., citing process and valuation deficiencies.

Summary

• Broadwood Partners, L.P. and its affiliates ('Broadwood'), STAAR Surgical Company's largest shareholder with a 27.3% stake (13,545,391 shares), intend to vote against the proposed acquisition of STAAR Surgical by Alcon Inc.
• Broadwood believes the transaction suffers from multiple process and valuation deficiencies, and criticizes the STAAR Board's choices.
• Key concerns include Alcon's previous higher offer of $55.00 per share plus a $7.00 contingent value right in October 2024, which was withdrawn but now the underlying challenges have been addressed.
• Broadwood asserts there was no meaningful market check, with other interested parties not given sufficient time and no formal outreach to solicit other bidders.
• The timing of the merger agreement execution, prior to the release of improved Q2 results, allowed Alcon to secure a lower price.
• Broadwood also highlights a potential misalignment in vision regarding the market potential of STAAR's EVO ICL technology, especially in light of an upcoming clinical trial (EVOlve) comparing it to LASIK.

Sentiment

Score: 3

Explanation: The sentiment is negative regarding the proposed merger due to significant concerns about valuation, process, and corporate governance. However, there's an underlying positive sentiment towards STAAR's intrinsic technology and future potential if a better path is pursued.

Positives

• Broadwood continues to believe in the superiority of STAAR's proprietary technology.
• STAAR has a large global growth potential.
• STAAR has the ability to again become a highly profitable company.
• STAAR has addressed inventory management challenges and improved cost discipline, providing a path to a sharp rebound in revenue and profits in coming quarters.
• An independent randomized clinical trial (EVOlve) comparing EVO-ICL to LASIK is complete, with results expected soon, potentially highlighting the advantages of EVO ICL.

Negatives

• The proposed acquisition by Alcon Inc. suffers from multiple process and valuation deficiencies.
• STAAR's Board of Directors made disappointing choices under the influence of its current advisers, including selling the company without pursuing an adequate sale process.
• Alcon's current offer is inferior to its previous offer of $55.00 per share plus a $7.00 contingent value right made in October 2024, despite STAAR having resolved the challenges that led to the withdrawal of the earlier offer.
• There was no meaningful market check, with two interested parties (Party A and Party B) not given sufficient time to submit proposals, and no formal outreach to solicit other bidders.
• The merger agreement was executed before STAAR's improved second-quarter results were released, allowing Alcon to lock in a transaction price that did not reflect these better fundamentals.
• There is a clear misalignment in vision between Alcon and STAAR's shareholders regarding the market potential of the EVO ICL, particularly for moderate and low myopes.

Risks

• The proposed merger may not be in the best interest of STAAR's shareholders due to insufficient consideration and a flawed sales process.
• The Board's choices and the sales process could lead to a suboptimal outcome for shareholders.
• Failure to conduct a robust sale process could mean missing out on higher bids or other value-creating alternatives.
• The timing of the merger agreement, preceding the release of improved financial results and an important clinical trial, could undervalue the company.
• A potential misalignment in strategic vision between Alcon and STAAR's current shareholders regarding the EVO ICL's market positioning could impact future growth under Alcon.
• Broadwood's 'books and records demand' has not resulted in document production after 24 days, indicating potential governance issues or resistance.

Future Outlook

Broadwood believes STAAR Surgical has significant global growth potential and can return to high profitability. They anticipate a sharp rebound in revenue and profits in coming quarters due to addressed inventory challenges and improved cost discipline. Broadwood also expects the upcoming EVOlve clinical trial results to have significant implications for the competitive positioning and long-term growth prospects of the EVO ICL. They are exploring strategic alternatives to the current merger, including engaging with potential alternative strategic and financial partners for STAAR.

Management Comments

• Broadwood continues to believe in the superiority of STAAR’s proprietary technology, its large global growth potential, and its ability to again become a highly profitable company.
• Broadwood believes the transaction suffers from multiple process and valuation deficiencies.
• Broadwood has been disappointed in the choices that STAAR’s Board of Directors has made under the influence of its current advisers.
• Broadwood is concerned that stockholders are now being asked to accept inferior terms despite the fact that the challenges that followed Alcon’s initial bid have been substantially resolved.
• Broadwood believes that far better value-creating alternatives than the Alcon acquisition offer would have been available to the STAAR Board and STAAR’s shareholders if a proper sale process had been pursued.
• Alcon swooped in at a low price when STAAR was well along in fixing the problems that we believe had caused Alcon to back away from its previous offer at a much higher price.
• Given time, Broadwood believes that STAAR could have quickly returned to significant revenue growth and substantial profitability, and then conducted a robust sale process—the likely result of which would have been either a much higher bid from Alcon or success in pursuing any of a number of other paths that would realize higher shareholder value.
• Broadwood is concerned that the timing of Alcon’s actions may have been driven partly by the expected publication of this study.
• Broadwood intends to vote against the acquisition and asks the Board to immediately reconsider its recommendation thereof.

Industry Context

The ophthalmic products industry is seeing ongoing competition between refractive surgery technologies like LASIK and implantable collamer lenses (ICLs) such as STAAR's EVO ICL. The upcoming EVOlve clinical trial, comparing Alcon's LASIK platform to the EVO ICL, is a significant event that could shift market perceptions and competitive positioning. Broadwood highlights a potential market share shift from LASIK to EVO ICL, driven by clinical evidence, suggesting a dynamic and evolving landscape for vision correction solutions.

Comparison to Industry Standards

• The EVOlve (NCT06700460) independent randomized clinical trial directly compares Alcon's LASIK platform to STAAR's EVO ICL, providing a benchmark for their respective outcomes and competitive advantages.
• Broadwood's view of the EVO ICL's potential for moderate and some low myopes contrasts with Alcon's public statements focusing on moderate and high myopes, indicating differing strategic assessments of market opportunity within the ophthalmic products industry.
• The previous offer from Alcon of $55.00 per share plus a $7.00 CVR in October 2024 serves as a historical benchmark for STAAR's valuation, which Broadwood believes is superior to the current offer.

Corporate Governance

Legal Proceedings

• Broadwood has made a 'books and records demand' which has not been fulfilled, potentially indicating a precursor to legal action if the demand continues to be ignored.

Stakeholder Impact

• Shareholders: Broadwood, as the largest shareholder, believes the current merger offer is not in their best interest due to undervaluation and a flawed process, potentially leading to a loss of significant value. Other shareholders will need to decide whether to support the Board's recommendation or Broadwood's opposition.
• Company Management/Board: The Board's recommendation is being challenged by a major shareholder, putting pressure on their strategic decisions and potentially leading to a proxy contest or further shareholder activism.
• Employees: The outcome of the merger or alternative strategic actions could impact employment, company culture, and strategic direction.
• Alcon: Broadwood's opposition creates uncertainty for Alcon's acquisition plans and could force them to revise their offer or abandon the deal.

Next Steps

• Broadwood intends to vote against the proposed acquisition of STAAR Surgical by Alcon Inc.
• Broadwood asks STAAR's Board to immediately reconsider its recommendation of the merger.
• Broadwood continues to explore strategic alternatives to the merger, including contact with possible alternative strategic and financial partners for STAAR.
• Broadwood will review its investment in STAAR on a continuing basis.
• Broadwood reserves the right to take further action and change its opinions or intentions regarding its investment.

Key Dates

Recommendation

Broadwood, as the largest shareholder, is actively opposing the proposed acquisition by Alcon, arguing that the company is significantly undervalued and that a proper sale process was not conducted. They believe in STAAR's superior technology, global growth potential, and ability to return to high profitability, especially given recent operational improvements and an upcoming clinical trial. This suggests that the current offer does not reflect the company's true intrinsic value. For investors, this creates a 'hold' scenario: if Broadwood's efforts are successful, the merger could be blocked, potentially leading to a higher offer or STAAR pursuing a standalone strategy that Broadwood believes will unlock greater shareholder value. Selling now at the current merger price would mean accepting what Broadwood deems an insufficient offer.

Keywords

STAAR Surgical, Alcon, Merger, Acquisition, Broadwood Partners, Schedule 13D, Shareholder Activism, Ophthalmology, EVO ICL, LASIK, Corporate Governance, Valuation, SEC Filing