Abbott Laboratories Is Buying St. Jude Medical In Cash-And-Stock Deal Worth $25 Billion

Abbott Laboratories will buy St. Jude Medical in a deal worth $25 billion. The merger agreement is poised to create a dominant global medical behemoth specializing in cardiovascular and diabetes devices.

“Together we will compete in nearly every area of the cardiovascular device market,” Abbott Laboratories CEO Miles White said during a conference call.

Abbott Laboratories and St. Jude will become one by the end of the year.
Abbott will pay $46.75 in cash and 0.8708 shares of its common stock for every share of St. Jude Medical. The cash-and-stock deal represents about $85 per share, a 37 percent premium over St. Jude’s closing price on Wednesday of $61.95. Abbott will also either refinance or assume St. Jude’s net debt of $5.7 billion.

According to the chief executive, the combined company will have a unique competitive advantage with the ability to negotiate better deals with medical providers and reduce overall health care costs for patients. By having a larger portfolio of products and sales force, Abbott will be able to increase sales in a market that has been experiencing rapid consolidation in the past few years.

“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,” said White.

While the acquisition deal is expected to close sometime in the fourth quarter, it still needs shareholder approval and to jump over regulatory hurdles. After the merger, annual cardiovascular device sales are expected to hit $8.7 billion, making it one of the top producers of heart health devices in the world.

With $20.4 billion in sales for 2015, Abbott’s earnings increased to $4.4 billion, almost double the year before. The company, which specializes in coronary stents and wire mesh tubes, had a market value of $64.6 billion at the close of business on Wednesday afternoon.

St. Jude Medical, based in Little Canada, Minnesota, had $5.54 billion in sales last year and $880 million in earnings, a 12 percent decline from 2014. Still, in the past three months, the share price has surged 48 percent and 43 percent just in the last 30 days.

Employing roughly 18,000 workers, St. Jude had a market value of $17.6 billion on Wednesday. Known mostly for artificial heart valves, pacemakers, and defibrillators, the company has been working diligently over the past few years to develop new devices and therapies.

The merger comes as the U.S. population is living longer, therefore having more health problems. According to the American Heart Association, more than 40 percent of adults are predicted to have some type of heart disease by 2030.

The purchase of St. Jude Medical casts doubt on another deal Abbott is trying to complete. In February, Abbott agreed to buy healthcare diagnostics company Alere Inc. for $56 per share, a deal worth $5.8 billion.

However, since the deal was approved, Alere revealed that it is involved in a corruption scandal and investigation related to overpayments in Africa, Asia, and Latin America. The company also failed to file a 2015 annual report with U.S. regulators.

When asked about the deal last week, White declined to comment, leading many to believe it will not complete. He also denied rumors that Abbott was looking to buy St. Jude back in August. While Abbott has kept an eye on St. Jude, the deal to acquire them did not become a serious company discussion until late 2015.

“The two companies are much more competitive together than apart,” White said. “At the end of the day, you finally say it’s compelling to put this together.”

In the first full year after Abbott Laboratories buys St. Jude Medical, adjusted earnings per share are expected to rise. Industry analysts predict an increase of 21 cents per share in 2017 and 29 cents in 2018.

[Photo by Tim Boyle/Getty Images]