Abbott Laboratories (ABT.N) said it would buy St. Jude Medical Inc (STJ.N) for $25 billion to expand its heart device business as it competes with larger rivals Medtronic Plc (MDT.N) and Boston Scientific Corp (BSX.N).
Analysts questioned the cost of the deal versus its financial benefits, and how it would affect Abbott’s purchase of diagnostics company Alere Inc (ALR.N), which the U.S. government is investigating for its sales practices.
Abbott Chief Executive Officer Miles White defended the St. Jude deal, saying it would add to earnings per share in the first full year after it closes. He also said financing plans contemplate both the Alere and St. Jude acquisitions.
St. Jude shareholders will receive $46.75 in cash and 0.8708 in stock, or about $85 per share. This represents a 37 percent premium to St. Jude’s Wednesday closing.
Abbott said on Thursday it would take on or refinance about $5.7 billion of St. Jude’s net debt.
The company said St. Jude’s devices for heart failure, blockages and abnormal heart rhythm complement its range of heart products. With St. Jude, Abbott could compete better in an environment where hospitals prefer to deal with only two or three companies, White said.
The deal will add 21 cents per share to earnings, excluding special items, in 2017 and 29 cents in 2018, Abbott said.
The move comes after years of speculation about the two medical device companies merging.
Bloomberg reported last summer that a deal was under discussion, but Abbott denied it.
Asked on Thursday by analysts during a conference call, White said the talks did not begin until late last year.
“I don’t know that anything has changed,” White said. “I’ve been open about being interested in M&A.”
Abbott’s cardiovascular device unit will have annual sales of $8.7 billion after the business are combined.
The company said in February it would buy Alere for $5.8 billion to become the leader in point-of-care diagnostic testing.
Later that month, Alere said it received a grand jury subpoena from the U.S. Department of Justice and that it would delay filing its annual report.
White last declined week to respond directly to a question on the Alere agreement, fueling speculation the deal might not close. On Thursday, he said that he declined to comment as company policy.
Evercore is advising Abbott on the St. Jude deal, while Guggenheim Securities is the financial adviser to St. Jude.
Wachtell, Lipton, Rosen & Katz was legal counsel to Abbott, while Gibson, Dunn & Crutcher advised St. Jude.
(Reporting by Amrutha Penumudi in Bengaluru and Caroline Humer in New York; Additional reporting by Natalie Grover and Sayantani Ghosh; Editing by Saumyadeb Chakrabarty and Lisa Von Ahn)