Abbott Agreed to Buy St. Jude in $25 Billion Deal--5th Update
29 April 2016 - 12:19AM
Dow Jones News
By George Stahl and Joseph Walker
Abbott Laboratories agreed to acquire St. Jude Medical Inc. in a
cash-and-stock deal valued at $25 billion that would create one of
the leading makers of heart-related devices.
Under the deal, Abbott agreed to swap $46.75 in cash and 0.8708
shares for each St. Jude share. The offer values each St. Jude
share at about $85, representing a 37% premium to the stock's
closing price Wednesday.
Shares of Abbott fell 7% to $40.60 in early trading, while St.
Jude rose 25% to $77.70.
The companies said the deal merges St. Jude's strong positions
in heart-failure devices, heart catheters and defibrillators with
Abbott's strength in coronary intervention and heart-valve repair.
When combined, the merged company will have annual cardiovascular
sales of $8.7 billion.
The merger is occurring as heart disease becomes a bigger
problem. According to the companies, more than 40% of adults in the
U.S. are expected to have one or more forms of heart disease by
2040.
The boards from both companies have approved the transaction,
which still requires shareholder and regulatory approvals. The
companies expect the deal to close in the fourth quarter.
Abbott CEO Miles White, speaking on a conference call with
analysts on Thursday, said acquiring St. Jude would enable the
combined company to better compete in an increasingly consolidated
U.S. health-care market.
U.S. hospitals, the largest purchasers of medical devices, have
grown larger and become more powerful negotiators in recent years.
Hospitals have also narrowed the number of suppliers they work with
as a way to keep down costs. Mr. White said having a larger product
portfolio and sales force would enable Abbott to win more business
in a more competitive market.
"The value of having breadth in your product lines, the changing
way the health care community has consolidated or purchases or
selects products, all those factors come to a point over time where
the strategic value of Abbott and St. Jude coming together becomes
compelling," Mr. White said.
Another large medical device firm, Medtronic PLC, gave a similar
rationale when it agreed to acquire Covidien PLC in 2014, arguing
that hospitals would increasingly look to purchase medical supplies
from fewer and fewer vendors. Medtronic is a major competitor to
St. Jude in the pacemaker and implanted defibrillator markets.
Michael Weinstein, a J.P. Morgan analysts, said in a note to
clients that "investors are likely to frown on" the strategic
rationale of the deal because it shifts Abbott away from its focus
on growing in emerging markets through its consumer businesses such
as nutritional food products. St. Jude has also had "repeated
stumbles in executing on its pipeline," Mr. Weinstein said.
Abbott sees the deal adding to its adjusted earnings in the
first full year after closing. On a per-share basis, Abbott
estimates the buy increasing earnings by 21 cents in 2017 and 29
cents in 2018. The companies see sales and operational benefits of
$500 million by 2020.
In 2015, Abbott's sales rose 0.8% to $20.4 billion, and its
earnings nearly doubled to $4.4 billion, which included a gain from
the sale of discontinued operations. As of Wednesday, Abbott had a
market vale of $64.6 billion.
St. Jude's sales fell 1.4% to $5.54 billion in 2015, and its
earnings declined 12% to $880 million. The company's market value
was $17.6 billion.
Abbott's deal for St. Jude comes as the company is trying to
complete its $5.8 billion purchase of Alere Inc., the health-care
diagnostics company that is grappling with foreign corruption
probes.
Abbott agreed in February to pay $56 per share to acquire Alere,
a 51% premium to the company's share price before the deal's
announcement. Since then, Alere has disclosed it has received a
subpoena regarding a foreign corruption investigation over payments
in Africa, Asia and Latin America. The company also has missed a
deadline to file its 2015 annual report with regulators because it
is analyzing its revenue recognition in Africa and China over the
past three years.
Last week, Mr. White declined to affirm his commitment to the
deal. Thursday, though, Abbott discussed plans to issue $3 billion
of stock "to rebalance its capital structure" and help finance the
Alere and St. Jude deals.
Write to George Stahl at george.stahl@wsj.com and Joseph Walker
at joseph.walker@wsj.com
(END) Dow Jones Newswires
April 28, 2016 10:04 ET (14:04 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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