Broadwood Partners' Activist Campaign at STAAR Surgical: A Case for Unlocking Hidden Value Through Governance and Strategic Reassessment

The ongoing battle between Broadwood Partners and STAAR Surgical over the proposed $28-per-share acquisition by Alcon has sparked a critical debate about corporate governance, strategic decision-making, and shareholder value. While STAAR defends the merger as a premium offer, Broadwood's campaign-rooted in allegations of flawed process, timing, and valuation-suggests a broader opportunity to unlock hidden value through operational and strategic overhauls. This analysis examines how Broadwood's criticisms, if addressed, could reshape STAAR's trajectory and create long-term equity upside.

The Flawed Merger Process: A Missed Opportunity for Competitive Bidding

Broadwood's primary contention is that the Alcon acquisition was negotiated in a "flawed" and "rushed" process, with STAAR's board engaging only one potential buyer despite evidence of interest from others, according to Broadwood's proxy statement. According to a Yahoo Finance report, Broadwood highlights that at least two alternative bidders had contacted an independent board member during negotiations. By failing to solicit competitive bids, STAAR potentially left value on the table. A robust market check-common in high-stakes M&A-could have created tension among buyers, driving up the offer price. For instance, Alcon initially proposed $55 per share in October 2024 but withdrew during a temporary inventory challenge for STAAR, as noted in Broadwood's presentation. Broadwood argues that the revised $28-per-share offer, finalized after a 30-day negotiation, fails to reflect STAAR's intrinsic value or its recent operational turnaround, according to Ophthalmology Times.

Management Incentives and Financial Projections: A Conflict of Interests?

Another cornerstone of Broadwood's campaign is the abrupt revision of STAAR's financial projections. Management slashed its 2027 EBITDA forecast by 20% just ten days before the board vote, a move Broadwood claims was designed to justify the lower valuation, according to a StreetInsider report. This revision coincided with accelerated vesting of management's shares and $55 million in compensation tied to the deal's closure. Such timing raises questions about whether the projections were driven by strategic realism or self-interest. As noted by Morningstar, Broadwood further criticizes the board's financial advisor for using an unconventional cost-of-capital assumption to engineer a fairness opinion that aligned with the $28-per-share offer. Independent analyses from Bloomberg and FactSet suggest STAAR's fair value range has a midpoint above $41 per share, implying a significant undervaluation.

Strategic Alternatives: Beyond the Alcon Merger

While Broadwood has not explicitly outlined a detailed operational roadmap, its campaign implicitly advocates for a strategic reassessment. For example, the activist firm projects that STAAR could achieve nearly $500 million in net sales by 2030 if the merger is rejected, according to Broadwood's letter. This optimism hinges on addressing structural challenges, such as declining sales in China (which accounted for 51% of consolidated net sales in 2024, per STAAR's press release) and increased competition in the refractive surgery market. A more aggressive diversification strategy-expanding into emerging markets or investing in R&D for next-generation intraocular lenses-could mitigate China's headwinds. Additionally, Broadwood's emphasis on governance reforms, such as replacing conflicted board members and aligning executive compensation with long-term performance metrics, could restore investor confidence, as argued in Broadwood's proxy filing.

Market Reactions and Shareholder Dynamics

The market has responded to the conflict with mixed signals. STAAR's stock has traded in a narrow range around $27 per share since the merger announcement, reflecting uncertainty about the deal's outcome. However, Broadwood's 27.5% stake and its alliance with Yunqi Capital-a major shareholder-suggest a potential shift in board dynamics if the activist campaign gains traction, as Broadwood announced its intent. A rejection of the Alcon merger could force STAAR to revisit its strategic alternatives, potentially unlocking value through a more competitive bidding process or operational improvements.

Conclusion: A Governance-Driven Path to Value Creation

Broadwood Partners' campaign at STAAR Surgical underscores the importance of rigorous governance and strategic transparency in high-stakes transactions. While the activist firm has not proposed a detailed operational overhaul, its criticisms-ranging from flawed merger processes to misaligned incentives-highlight actionable areas for improvement. By addressing these issues, STAAR could not only reject an undervalued offer but also position itself as a standalone entity capable of delivering superior long-term returns. For investors, the conflict serves as a reminder that activist campaigns, even when focused on process rather than operations, can catalyze transformative change.