Advanced Medical Optics (NYSE:EYE) may face some opposition to its proposed acquisition of Bausch & Lomb (NYSE:BOL) from its largest shareholder. ValueAct Capital, who owns 14.7% of the company's outstanding shares, said the $4.75 billion bid would reduce their returns and expose the company to "unacceptable risk"

ValueAct Capital insisted that the proposed acquisition increases business risk by further concentrating cash flows in a consumer contact lens and lens care business that is clearly prone to product recalls and that has a long-term demand profile that is much more questionable than EYE's surgical business. The debt financing reduces the margin for error operationally and, together with the proposed issuance of collarless equity, subjects current shareholders to significant capital market risk.

Many investors purchased stock in Advanced Medical Optics due to its diverse revenues and the strength of its surgical assets. Favorable demographics support solid secular growth rates, which the hedge fund and others believe will be augmented by less emphasis on reimbursement-based demand and more emphasis on consumer-based demand.

Unfortunately, this transaction will destroy these strengths and consolidate its cash flows in the consumer contact lens market. If ValueAct Capital is able to breakup this proposed transaction, it could save shareholders a significant amount of money in the future. This makes EYE a stock worth watching!

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