AMO & VISX: Number one in Refractive Surgery

Advanced Medical Optics Inc. (AMO), a specialist in ophthalmic surgery, has acquired Visx Inc. , the largest manufacture of lasers for refractive (vision correction) surgery for a combination of cash and stock worth $1.27 billion. AMO will pay $26.52 a share for Visx, a 46% premium to the closing price on the previous day, or 14 times next year's sales. [See Deal] Analysts were surprised by the magnitude of the deal, following so soon on the heels of AMO's $450 million purchase of the ophthalmic surgical business of Pfizer Inc. in April, which brought it products for the cataract and glaucoma markets. [See Deal] However, this is not simply the merger of two major ophthalmic companies for the purpose of achieving critical mass; the two companies operate in distinct, largely non-overlapping markets, and to all appearances fit together like hand in glove.

For AMO, the acquisition accelerates a strategy of creating three major core franchises around a group of individual products it...