Anti-trust regulators want more on Abbott’s pending, $25B St. Jude Medical buyout

Abbott (NYSE:ABT) and St. Jude Medical (NYSE:STJ) said yesterday that U.S. anti-trust regulators want more information about their proposed $25 billion merger.

The Federal Trade Commission’s requests mean that the waiting period on the deal is extended by 30 days “unless the period is extended voluntarily by the parties or terminated sooner by the FTC,” the companies said in separate but identical securities filings.

The $85-per-share deal, announced in April, consists of $46.75 in cash and 0.8708 ABT shares; at Abbott’s 5-day volume weighted average share price of $43.93 as of April 26, the buyout is worth about $25 billion. That’s a 37% premium on the closing price of $61.97 for STJ shares the day before the acquisition was revealed.

The companies said the union will create a “best-in-class” competitor in nearly all segments of the cardiovascular market with the 1st or 2nd position “across large and high-growth cardiovascular device markets” with combined annual sales of about $8.7 billion. The deal also calls for Abbott to assume or refinance St. Jude’s $5.7 billion in net debt.

“Bringing together these 2 great companies will create a premier medical device business and immediately advance Abbott’s strategic and competitive position,” Abbott chairman & CEO Miles White said at the time. “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.”

“Today’s announcement is an exciting next chapter for St. Jude Medical, bringing together 2 industry leaders with a shared passion for innovation, culture and patients,” added St. Jude president & CEO Michael Rousseau. “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 organization. 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.”

Abbott said it expects the transaction to add 21¢ to adjusted earnings per share in 2017 and 29¢ the next year. The Chicago-area healthcare giant has another large buyout pending, the nearly $6 billion acquisition of diagnostics firm Alere (NYSE:ALR). Abbott has said that it anticipates financing the purchases with outside financing. The Alere deal which drew scrutiny after White appeared to throw some shade, shareholders sued to block the deal and the U.S. Justice Dept. opened a probe; Abbott itself is reportedly auditing the diagnostics company’s books.

For St. Jude, Abbott said it expects to float $3 billion worth of common stock in a secondary offering. During a conference call in April, analysts questioned the cost of the deal versus its financial benefits, and how it would affect Abbott’s purchase of Alere.

White defended the St. Jude deal, saying it would add to earnings per share in the 1st full year after it closes. Asked about the timing of the deal, after Abbott shot down rumors that the companies were in talks last summer, White said the talks did not begin until late 2015.

“I don’t know that anything has changed,” he said. “I’ve been open about being interested in M&A.”

“St. Jude is in more mature cardiac rhythm management markets, so does this really become additive to the overall Abbott revenue growth rate?” BMO Capital Markets analyst Joanne Wuensch said.

“Abbott as serial acquirer has built up its medical device division,” added Morningstar analyst Debbie Wang. “Once they make those purchases, it does not seem like management is very good at producing meaningful innovation.”

“Price pressure has been a way of life for a couple of years, so you have to make it up on volume,” said Gabelli Funds portfolio manager Jeff Jonas, adding that there is “really no overlap” in the companies’ products.