Abbott and St. Jude agree $25bn deal

June 2016 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

In late April, Abbott Laboratories announced that it had agreed to acquire St. Jude Medical Inc in a $25bn cash and stock deal which will substantially expand the company’s heart device offering.

According to the terms of the deal, St. Jude shareholders will receive $46.75 in cash and 0.8708 shares of Abbott common stock, representing a total consideration of approximately $85 per share, at an Abbott stock price of $43.93. The agreed price represents a 37 percent premium above St. Jude’s closing price on the day before the deal was announced.

The transaction, which has been approved by the boards of directors of St. Jude and Abbott, is subject to the approval of St. Jude’s shareholders, as well as the usual closing conditions, including regulatory approvals. Given that there is very little crossover between the companies’ offerings, the deal is expected to be ratified fairly easily. As a result, the two companies expect the deal to close in the fourth quarter of 2016. Abbott will take on or refinance around $5.7bn of St. Jude’s net debt. The deal is the largest healthcare merger in 2016 so far.

News of the St. Jude acquisition has raised considerable doubts over Abbott’s proposed $5.8bn deal for diagnostics company Alere, which is currently under federal investigation for its sales practices in a number of jurisdictions including Africa, Asia and Latin America, as well as for some other Foreign Corrupt Practices Act matters. As a result of the investigation launched by the Department of Justice, Alere said it would delay filing its annual report.

“Bringing together these two great companies will create a premier medical device business and immediately advance Abbott’s strategic and competitive position,” said Miles D. White, Abbott ‘s chairman and chief executive. “The combined business will have a powerful pipeline ready to deliver next-generation medical technologies and offer improved efficiencies for health care systems around the world.” The combined company will hold the first and second market share positions in the cardiovascular device market.

Abbott claims that the deal will add to the company’s adjusted earnings per share in the first full year after the close of the transaction. In a statement, Abbott noted that the deal will add 21 cents per share in 2017 and 29 cents in 2018. The acquisition will also go a long way toward improving Abbott’s standing against rival medical device manufacturers Medtronic PLC and Boston Scientific Corp. The company’s medical devices division has been one of the few black marks on Abbott’s copybook in recent years. While encouraging growth has been registered in most other areas, the firm’s medical device offering has languished, particularly in rapidly emerging markets including China and Latin America.

For many analysts, the agreed deal between Abbott and St. Jude has been a long time coming. Indeed, there has been considerable speculation over a potential deal between the two for around two years, though Abbott has previously denied discussions had taken place.

When combined, the merged company will have annual cardiovascular sales of $8.7bn. The amalgamation of the two companies is expected to allow a costs reduction of around $500m on both the sales and operational sides of the business by 2020. The two companies have been selling some products jointly since 2008 as part of an ongoing alliance.

“Today’s announcement is an exciting next chapter for St. Jude Medical, bringing together two industry leaders with a shared passion for innovation, culture and patients,” said Michael T. Rousseau, the company’s president and chief executive. “Our combined scale will expand the global reach, competitiveness and impact of our medical device innovation for physicians and hospitals. This transaction provides our shareholders with immediate value and the opportunity to participate in the significant upside potential of the combined organisation. I’d like to thank our 18,000 employees whose hard work and commitment help us deliver leading medical technologies to patients around the world.”

Richard Summerfield