Corporate Governance and Shareholder Value in M&A: ISS's Stance on Alcon's Staar Surgical Bid

Institutional Shareholder Services (ISS) has emerged as a pivotal player in the contentious debate over Alcon's $1.5 billion acquisition of Staar Surgical, a mid-cap medical device manufacturer. The proxy advisory firm's recommendation against the deal—echoed by Glass Lewis and Egan-Jones—has intensified scrutiny of corporate governance practices in mergers and acquisitions (M&A) and their implications for shareholder value. This analysis unpacks ISS's rationale, the strategic arguments from both sides, and the broader lessons for investors navigating governance-driven M&A dynamics.

Governance Concerns: Process, Timing, and Transparency

ISS's opposition hinges on three core governance-related issues: process deficiencies, questionable timing, and valuation inadequacy. The firm argues that Staar's board failed to secure the best possible offer by bypassing a competitive auction process, raising concerns about fairness and transparency, Broadwood Partners argued. According to a Reuters report, ISS criticized the board for "pursuing the deal at the wrong time, through the wrong process, and at the wrong price," noting that Staar's recent financial improvements—such as resolving inventory challenges and demonstrating cost discipline—suggest the company could weather market risks without selling.

The timing of the deal further complicates the narrative. The $28-per-share offer was announced just days before Staar's Q2 2025 earnings report, which exceeded expectations. ISS and critics like Broadwood Partners argue this timing weakened the board's leverage, as the improved results were not factored into the valuation, according to an OCBJ article. Additionally, the absence of a meaningful market check—whereby potential bidders could have been engaged—left shareholders without evidence that Alcon's offer represents the highest value, a Broadwood announcement said.

Valuation Disputes: Premium vs. Potential

While Staar's board and management defend the merger as a "compelling value" for shareholders, citing a 51% premium over the stock's closing price and a 59% premium to the 90-day volume-weighted average price, according to a Staar press release, ISS and dissenting shareholders counter that the offer undervalues the company's long-term potential. The $28-per-share price represents a 30.6% discount to Staar's 52-week high and fails to account for its recent operational improvements, according to the proxy filing.

Analysts from J.P. Morgan and Canaccord Genuity support the merger, arguing that the deal provides immediate liquidity in a volatile market and mitigates risks from Staar's declining Chinese revenue (down 92% year-over-year in 2024 due to inventory issues and economic headwinds), according to a Staar press release. However, Broadwood Partners and Yunqi Capital, which collectively hold 34% of shares, contend that the company's standalone prospects—bolstered by cost discipline and a stronger balance sheet—justify a higher valuation.

Strategic Implications for Investors

The Staar Surgical case underscores the tension between short-term certainty and long-term growth in M&A. For investors, the key question is whether the board's decision to forgo an auction prioritized immediate gains over maximizing shareholder value. ISS's stance reflects a broader skepticism of management's ability to navigate complex market conditions, particularly in industries like medtech, where regulatory and geopolitical risks are pronounced, as noted in a Harvard Law Forum post.

Moreover, the controversy highlights the growing influence of proxy advisory firms in shaping corporate governance outcomes. Critics argue that ISS's power—coupled with its corporate consulting services—creates potential conflicts of interest, a point discussed in ISS's special situations research. Yet, the firm maintains that its methodologies are designed to align with shareholder preferences, emphasizing transparency and consistency in its recommendations, as explained in a Skadden article.

Conclusion: Governance as a Value Driver

The Alcon-Staar Surgical merger exemplifies how governance practices can directly impact shareholder value in M&A. For investors, the case reinforces the importance of scrutinizing not just the price of a deal but also the process by which it is negotiated. While Staar's board argues that the merger provides a "certain cash value" in an uncertain market, ISS and dissenting shareholders challenge the assumption that this certainty justifies forgoing competitive bidding.

As the October 23 shareholder vote approaches, the outcome will likely hinge on whether investors prioritize immediate liquidity or long-term growth. For now, the debate serves as a cautionary tale: in M&A, governance is not merely a procedural checkbox but a critical determinant of value creation.