Shares of Given Imaging soared Monday before markets opened and a day after Covidien said it would spend about $860 million to acquire the Israeli maker of products used for diagnosing and monitoring the digestive system.
Covidien, which is based in Ireland, said Sunday it will spend $30 for each share of Given Imaging. That price represents a premium of 27 percent to the company's closing price Friday of $23.65. The stock price had already climbed 35 percent so far this year, as of Friday.
U.S.-traded shares of Given Imaging climbed about 25 percent, or $5.99, to $29.64 Monday in premarket trading. Meanwhile, U.S.-traded shares of Covidien remained unchanged at $68.07. That stock has advanced about 18 percent so far in 2013.
Given Imaging's main product is PillCam, a capsule endoscope that patients swallow. The company has seven product lines across 21 gastrointestinal disease states.
Given Imaging Ltd. makes medical devices, surgical supplies and other health care products and said the deal will help it "significantly expand" its presence in the $3 billion market for gastrointestinal products. It will use cash on hand to finance the deal and expects it to be completed by next March. Covidien PLC said it expects Given Imaging to add between $40 million and $50 million per quarter in revenue to its medical devices segment.
Benchmark analyst Jan Wald said in a research note that the deal could add significant value for Covidien and makes sense for both parties.
"We believe that (Covidien) will be able to use its sales force, marketing and education and training muscle to enhance Given Imaging's penetration into the gastrointestinal market," Wald wrote.
Cantor Fitzgerald analyst Jeremy Feffer said in a separate note the deal is a good fit for Covidien's growing gastrointestinal business. He added that he thinks it is unlikely that a competing bid materially higher than $30 per share will emerge.