SCHEDULE: Broadwood Urges STAAR Surgical Stockholders to Reject Alcon Merger

Broadwood Capital, STAAR Surgical's largest shareholder, is actively opposing the proposed $28 per share acquisition by Alcon, citing inadequate price, flawed process, and board conflicts.

Summary

• Broadwood Partners, L.P. and its affiliates, holding approximately 27.5% of STAAR Surgical's outstanding shares, are urging stockholders to vote AGAINST the proposed merger with Alcon.
• The proposed acquisition by Alcon for $28 per share is deemed by Broadwood to be at a 'woefully inadequate price' that does not reflect the company's value and future potential.
• Broadwood believes the timing is inopportune, as STAAR is forecasting a return to growth and profitability, with macroeconomic headwinds abating and prior execution issues in China resolving.
• The merger process is criticized as 'flawed,' being hasty (less than a month), lacking proactive outreach to alternative buyers, and granting Alcon exclusive diligence access.
• Concerns are raised about a 'conflicted Board and management team,' specifically the Board Chair's longstanding consulting relationship with Alcon and significant executive compensation packages tied to the deal's closure.
• STAAR's CEO stands to receive approximately $24 million in compensation, and executives collectively about $55 million, due to accelerated vesting and above-target payouts if the deal closes.
• Another significant stockholder, Yunqi Capital Ltd. (5.1% owner), is also publicly opposing the transaction.
• Broadwood is prepared to support STAAR with new directors and executives, if necessary, and advocates for an objective and comprehensive strategic review should the merger be rejected.

Sentiment

Score: 2

Explanation: The filing expresses strong negative sentiment regarding the proposed merger, citing an inadequate price, flawed process, and conflicts of interest. While positive about STAAR's underlying business, the overall tone is highly critical of the transaction and the Board's actions.

Positives

• STAAR Surgical's EVO Implantable Collamer Lens technology is ideally positioned for the global refractive surgery market, with leading ophthalmologists increasingly sharing this opinion.
• The company has nearly $200 million in cash and no debt, indicating a strong balance sheet.
• STAAR is forecasting a return to growth and profitability, with macroeconomic headwinds and prior execution issues in China abating.
• Management's financial projections, released in the preliminary proxy statement, were well above consensus analyst estimates, showing abatement of inventory challenges and significant expense reduction.

Negatives

• The proposed acquisition price of $28 per share by Alcon is considered 'woefully inadequate' and does not reflect STAAR's intrinsic value or future promise.
• The Board's decision to sell the company is viewed as premature, occurring amid a temporarily strained macroeconomic environment and a depressed stock valuation.
• The merger process was 'hasty and limited,' taking less than a month and failing to involve proactive outreach to alternative counterparties.
• Alcon was granted a privileged position with exclusive access to diligence materials and management, while other interested parties were effectively shunned.
• The Board Chair had a longstanding consulting relationship with Alcon, paying hundreds of thousands of dollars over seven years, which was not discussed with fellow Board members until Broadwood insisted.
• STAAR's executives are poised to earn approximately $55 million in immediate compensation if the deal closes, with the CEO alone receiving about $24 million, raising concerns about personal financial interests influencing the decision.
• Alcon's proposed price of $28 per share represents a 55% decrease from its prior offer of $62 per share less than a year ago, despite a stronger business outlook for STAAR today.

Risks

• The proposed merger, if approved, risks prematurely ending STAAR's tenure in public markets at an inadequate price, potentially destroying long-term stockholder value.
• A 'flawed process' for the merger, including lack of competitive bidding and potential conflicts of interest, risks not achieving the best possible offer for the company.
• Macroeconomic headwinds since 2022 have affected the growth of the refractive surgery market, and while abating, could still pose challenges.
• Poor execution in China under prior leadership caused temporary revenue decline and profit evaporation, indicating operational risks if not properly managed.

Future Outlook

STAAR Surgical is forecasting a return to growth and profitability, with macroeconomic headwinds abating and prior execution issues in China resolving. Management's financial projections, which were only released with the preliminary proxy statement, are well above consensus analyst estimates, indicating an abatement of inventory challenges and a significant reduction in expenses.

Management Comments

• "The Companys CEO alone stands to receive approximately $24 million in compensation, due to the Boards decisions that accelerate the vesting of his stock grants and award payouts well above target performance levels."
• "We are confident that a properly conducted process, one that canvassed the full universe of potential buyers, would have uncovered interest from others, stoked competitive tension, and resulted in a price that reflects STAARs intrinsic value."
• "We do not believe there was any imperative for the Board to sell the Company amid a temporarily strained macroeconomic environment, particularly while STAARs stock was trading at a depressed valuation due to transitory issues in one of its markets."

Industry Context

The global refractive surgery market, where STAAR's EVO Implantable Collamer Lens technology is positioned, has faced macroeconomic headwinds since 2022. However, the company and some customers acknowledge these issues are abating, suggesting a potential recovery in market conditions. The proposed merger and Broadwood's opposition highlight the strategic value and competitive landscape within this specialized medical device sector.

Comparison to Industry Standards

• Alcon's current offer of $28 per share for STAAR Surgical is significantly lower than its own proposal of $62 per share less than a year ago (late October 2024), despite STAAR's business outlook being stronger today.
• The 'hasty and limited process' for the merger, which took less than a month and did not involve proactive outreach to alternative counterparties, is contrasted with a 'well-run strategic alternatives process' that would typically canvass the full universe of potential buyers to create competitive tension.

Corporate Governance

Related Party Transactions

• The Board Chair's longstanding consulting relationship with Alcon, which paid her hundreds of thousands of dollars over a seven-year period, is highlighted as a significant related party dealing and conflict of interest in the context of the proposed merger.

Stakeholder Impact

• Shareholders: The proposed merger at $28 per share is seen as destroying significant long-term value, as Broadwood believes the company is worth substantially more.
• Employees: The outcome of the merger vote and potential subsequent strategic review could impact employee morale, leadership, and strategic direction.
• Customers: Continued access to STAAR's EVO Implantable Collamer Lens technology and potential future innovations could be affected by the company's ownership and strategic focus.
• Board of Directors: The filing directly challenges the Board's decision-making, process, and perceived conflicts of interest, potentially leading to governance changes if the merger is rejected.

Next Steps

• Stockholders are urged to vote AGAINST the Proposed Merger and the Compensation Proposal at the Special Meeting using the GREEN Proxy Card.
• If the merger is rejected, Broadwood is prepared to support the company with the recruiting and nomination of new directors and executives, if necessary.
• An objective and comprehensive strategic review should be the first task if the merger is rejected.

Key Dates

Recommendation

The filing strongly argues that the proposed merger price of $28 per share is 'woefully inadequate' and does not reflect STAAR's intrinsic value or future potential. Broadwood, the largest shareholder, is actively campaigning against the merger, highlighting the company's strong cash position, lack of debt, leading technology, and forecasted return to growth and profitability. For a seasoned investor, the recommendation is to 'hold' and vote against the merger, as accepting the current offer would mean selling at a depressed valuation. If the merger is rejected, the stock is expected to have significant upside potential based on the company's fundamentals and Broadwood's commitment to support a strategic review and potential management changes.

Keywords

STAAR Surgical, Alcon, Merger, Acquisition, Broadwood Capital, Proxy Solicitation, Shareholder Activism, Refractive Surgery, EVO ICL, Corporate Governance, SEC Filing, Schedule 13D