Abbott Deal Shows There's Room For Easy Healthcare M&A
13 January 2009 - 8:17AM
Dow Jones News
Abbott Laboratories' (ABT) deal for Advanced Medical Optics Inc.
(EYE), along with other smaller ones, shows there's an appetite for
healthcare mergers - but so far companies are only willing to bite
off what they can easily chew.
"I think you're going to see companies be pretty aggressive, and
what they're going to be aggressive in acquiring is what they can
afford," said Jan Wald, an analyst with Stanford Group.
Many healthcare giants have lots of cash and see a landscape of
possible takeover targets with financial needs and low valuations.
The opportunity is there for the potential acquirers to enter new
lines of businesses or help improve underperforming assets.
In Abbott's case, the purchase of Advanced Medical for nearly
$1.36 billion, excluding debt, further diversifies the already
diversified medical company by giving it a vision business for the
first time. Similarly, health giant Johnson & Johnson (JNJ),
which is often viewed as a model for Abbott, did a $1.07 billion
deal recently to get into the cosmetic-surgery business.
Both deals were done with cash and could easily be handled by
the much larger companies. Abbott's market cap is $78 billion,
while J&J is above $162 billion.
Overall, the norm in healthcare lately appears to be manageable
deals, such as Medtronic Inc.'s (MDT) agreement Monday to buy a
private heart-device company for $225 million plus future milestone
payments.
Joanne Wuensch, a BMO Capital Markets analyst, said it's part of
the "new M&A paradigm." In other words, "companies with cash
shopping for beaten-up franchises which could be leveraged in an
economic recovery."
Big pharmaceutical companies are said to be on the prowl for
deals this year. Cash-rich drug makers such as Merck & Co. Inc.
(MRK) and Pfizer Inc. (PFE) have signaled they're looking for
biotechnology companies, particularly those suffering in the
current economic environment. Big pharma's goal is to add new
growth platforms amid worries about current drugs losing patent
protection.
Several drug-makers are also taking steps to diversify their
businesses and lessen their reliance on the U.S. market for
traditional prescription drugs. Wyeth (WYE), for example, is in
talks to acquire Dutch vaccines maker Crucell NV (CRXL), Crucell
disclosed last week.
In Abbott's case, Chairman and Chief Executive Miles D. White
signaled last summer that he was interested in building up the
non-pharmaceutical side of Abbott's business, including medical
devices and nutritionals. He has a history of swinging big deals at
Abbott, including the 2006 purchases of Guidant Corp.'s vascular
business and drug-maker Kos Pharmaceuticals.
Abbott also spun off hospital products-maker Hospira Inc. (HSP)
in 2004 under White's watch.
The latest deal "helps to continue the diversifications strategy
Miles created years ago," said John M. Capek, Abbott's executive
vice president of medical devices, in an interview.
Under the deal, Abbott will pay Advanced Medical Optics $22 a
share, a huge premium compared with Advanced Medical's closing
price Friday of $8.85 but actually a discount to where Advanced
Medical was trading last fall.
JPMorgan analyst Michael Weinstein said Abbott is a company
"taking advantage of its financial strength to pursue beaten-down
targets, this time in a new therapeutic area."
J&J similarly acted recently to buy recession-addled Mentor
Corp. (MNT), which makes breast implants.
Advanced Medical shares leapt on the deal news and were recently
up $12.74 to $21.59. Shares had been battered previously by a sharp
downturn in laser procedures to improve eyesight - the company is
the top maker of equipment for the so-called Lasik market.
Abbott shares fell 1.4% to $50.45.
-By Jon Kamp, Dow Jones Newswires; 617-654-6728;
jon.kamp@dowjones.com
(Peter Loftus contributed to this report.)
Click here to go to Dow Jones NewsPlus, a web front
page of today's most important business and market news, analysis
and commentary. You can use this link on the day this article is
published and the following day.