Abbott changes its tune, snatches up St. Jude in $25B deal

Abbott CEO Miles White

Abbott ($ABT) said last year that it wasn't interested in St. Jude ($STJ), but now, the company is changing its tune. The Illinois devicemaker will shell out $25 billion for St. Jude to gain ground in the cardiovascular and neuromodulation markets.

Under the terms of the deal, St. Jude shareholders will get $46.75 in cash and 0.8708 shares in Abbott common stock, which comes to about $85 per share. Abbott will take on St. Jude's $5.7 billion in debt and will fund the cash portion of the agreement with medium- and long-term debt, the companies said in a statement.

St. Jude and Abbott expect big things from the deal. The acquisition will be accretive to Abbott's adjusted earnings per share in the first full year after the deal closes. And the combined company will result in annual pretax synergies of $500 million by 2020.

Both companies' boards have already signed off on the deal. Now, Abbott and St. Jude are waiting for shareholders' approval. If all goes according to plan, the companies will close the deal during Q4 2016, Abbott and St. Jude said.

The deal sets Abbott up for growth, the company said. St. Jude has "strong positions" in heart failure devices, which will complement Abbott's strengths in coronary intervention in transcatheter mitral repair, a rapidly growing market. The cardiovascular market alone presents a $30 billion market opportunity, the companies said, and both sides are eager to cash in.

"Bringing together these two great companies will create a premier medical device business and immediately advance Abbott's strategic and competitive position. 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," Abbott CEO Miles White said.

The acquisition also helps Abbott continue to improve its med tech portfolio. The company has been trying to drive growth in its device business through smaller acquisitions after it split from AbbVie ($ABBV) a few years ago.

In 2014, Abbott shelled out $250 million plus undisclosed milestones for electrophysiology startup Topera. Last year, the company said that it would buy two mitral valve replacement startups to tap into a market with multibillion-dollar potential. Abbott also is looking to expand its offerings through its recent deal for ablation catheter sheath maker Kalila Medical.

Still, Abbott has floundered in one of its latest acquisitions. The company is planning to acquire Alere ($ALR) to beef up in point-of-care diagnostics. But some speculated that Abbott might backpedal on the deal after a recent report showed that Alere was under investigation for allegedly corrupt international sales practices.

White recently said that it was "not appropriate" to comment on its deal with Alere. But in the company's recent statement about its deal with St. Jude, it said that "(f)inancing for the St. Jude Medical transaction and the previously announced (Alere) acquisition contemplates financing capacity to close both transactions."

Abbott was down 9% in premarket trading upon news of its deal with St. Jude.

- read the statement

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