By Jof Enriquez,
Follow me on Twitter @jofenriq
Abbott will acquire St. Jude Medical for $25 billion in cash and stock to significantly enhance its medical device business and cope with increasing price pressure from consolidating hospital clients.
"Bringing together these two great companies will create a premier medical device business and immediately advance Abbott's strategic and competitive position," said Abbot CEO Miles D. White in a press release. "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 portfolio of the two companies is complementary. St. Jude Medical makes devices for heart failure, cardiac rhythm management, atrial fibrillation, and structural heart disease — including transcatheter aortic valve replacement (TAVR), interventional cardiovascular products, and neuromodulation devices. Abbott's device product line includes coronary stents, transcatheter mitral repair therapies, and products for peripheral artery disease, vision, and diabetes care.
"With combined annual sales of approximately $8.7 billion, Abbott's cardiovascular business and St. Jude Medical will hold the No. 1 or 2 positions across large and high-growth cardiovascular device markets and will compete in nearly every area of the market – with an aggregate market opportunity of $30 billion," states the release.
Abbott said the acquisition is aligned to trends, particularly cardiovascular disease, that will affect some 40 percent of U.S. adults by 2030, and it strengthens Abbott's presence in over 100 countries with a strong pipeline of new offerings across cardiovascular, diabetes, vision, and neuromodulation (chronic pain). The transaction will result in annual pre-tax synergies of $500 million by 2020, and is expected to close in the fourth quarter of 2016, pending shareholder and regulatory approvals.
In August, Abbott denied any interest in St. Jude, and instead bought smaller companies to add more heft to its device business, moves that analysts saw as a drag to the company's larger nutrition and pharmaceutical units. Abbott said talks with St. Jude did not begin until late last year.
White told analysts that the merger with St. Jude Medical will make Abbott more competitive against rivals in the consolidating healthcare market, where hospital clients have gained greater leverage over pricing negotiations with fewer suppliers.
“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,” White said in a conference call, according to the Wall Street Journal.
Abbott is also buying point-of-care diagnostics company Alere, and the company said it has secured "financing for the St. Jude Medical transaction and the previously announced Alere Inc. acquisition" and has "obtained a commitment letter from BofA Merrill Lynch for the full cash portion of the consideration for both transactions."