ABBOTT PARK, Ill.—Even just two months into 2016, a handful of multibillion-dollar deals have already been made, and Abbott is adding to those numbers. The company has announced a definitive agreement under which it will acquire Waltham, Mass.-based Alere for $56 per common share, for a total expected equity value of $5.8 billion. The share price represents a 50-percent premium over Alere’s stock value before the news went public, and Alere’s shares rose 45 percent upon news of the deal.
Both Alere and Abbott’s boards have approved the transaction, which is subject to the approval of Alere shareholders and customary closing conditions, including applicable regulatory approvals. In the wake of the closing, Alere will become a subsidiary of Abbott.
This transaction is expected to boost Abbott’s global diagnostics presence, making it a leading provider of point-of-care testing. In fact, when the deal closes, the combined entity reportedly will offer the broadest selection of point-of-care options in infectious disease, molecular, cardiometabolic and toxicology testing. Alere will enable Abbott to offer benchtop and rapid strip tests, as well as an expanded presence in key international markets and fields such as doctors’ offices, clinics, pharmacies and at-home testing. Alere also brings with it the first wireless point-of-care solution for blood gases, electrolytes and metabolites. It is expected that Abbott’s total diagnostics sales will surpass $7 billion after the deal is completed.
“The combination of Alere and Abbott will create the world’s premier point-of-care testing business and significantly strengthen and grow Abbott’s diagnostics presence,” remarked Miles D. White, chairman and CEO of Abbott. “We want to offer our customers the best and broadest diagnostics solutions. Alere helps us do that.”
Abbott expects the deal to be immediately accretive to its earnings per share upon close and significantly more accretive in the future, with a forecast accretion of 12 to 13 cents in 2017 and more than 20 cents in 2018. Annual pre-tax synergies are expected to approach $500 million by 2019 and increase after that.
Alere brings impressive financial heft with it as well, seeing annual sales of $2.5 billion and having delivered more than 1.4 billion tests at the point of care last year. The company has developed tests for serious infections such as HIV, tuberculosis, malaria and dengue, as well as for more routine maladies—one of those tests is Alere i, the first molecular CLIA-waived test for flu and strep that provides results in under 15 minutes.
“Today’s announcement marks an exciting and transformative milestone for Alere and one that provides an immediate benefit for our stockholders,” Namal Nawana, president and CEO of Alere, commented in a statement. “Our leading platforms and global presence in point-of-care diagnostics, combined with Abbott’s broad portfolio of market-leading products, will accelerate our shared goal of improving patient care. I’d like to thank our global workforce of nearly 10,000 employees whose hard work and dedication has enabled Alere to contribute to improved patient outcomes throughout the world.”
Leerink called the deal “surprising but strategic,” noting that they expected Abbott’s leadership team would prefer an acquisition that would “shore up” its Medical Devices segment, which Leerink called “a recent relative under-performer.” However, given the fact that Abbott reported point-of-care diagnostics sales for Q4 2015 increased 8.6 percent on an operational basis, with full-year point-of-care sales comprising 10 percent of the company’s total diagnostics sales, it makes sense that Abbott would continue to pursue one of its chief earning markets. Leerink remarked that Abbott’s “Diagnostics business is well positioned to absorb and successfully integrate such a deal given its already-high and still-improving operating margins. With the deal, management is targeting synergies approaching $500 million by 2019. With solid execution, it’s possible that this synergy goal may even prove conservative.”
This will probably not be the last acquisition news from Abbott either, as the company called further M&A activity a “high priority” in its earnings call following its fourth-quarter earnings announcement. Leerink noted that Abbott is in good shape to make further deals.
“With over $6 billion in cash on hand—just over $2 billion in net debt,” along with a roughly $3.5-billion stake in Mylan, Leerink analysts noted, Abbott “clearly has the wherewithal to execute another multibillion-dollar transaction while retaining the financial flexibility to deliver on its other capital allocation priorities in dividends and share buybacks.”