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Abbott Labs to Buy St. Jude Medical for $25 Billion

- By Alberto Abaterusso

Abbott Labs (ABT) agreed Dec. 27 to the conditions imposed by the U.S. Federal Trade Commission for the closing of the deal that will see Abbott purchase St. Jude Medical (STJ) for a total consideration of $25 billion.


After Abbott Labs' agreement on the FTC's conditions, there aren't any other obstacles to Abbott's plan to purchase St. Jude Medical. Thus, the white smoke is expected anytime soon.

The conditions were imposed by the FTC in respect of certain antitrust rules. In particular, the FTC required Abbott to sell off two cardiovascular devices.

Last October the two U.S. companies agreed to sell St. Jude Medical's Angio-Seal and Femoseal, vascular closure products, and Abbott's Vado Steerable Sheath, a heart catheter, to Terumo Corp. (TSE:4543) for a consideration of approximately $1.12 billion.

Once the Abbott Labs-St. Jude Medical deal is completed, the combined business will have a positive impact on both shareholders and heart patients because the new business entity will be a leader in the cardiovascular market. Thus, it will contribute more effectively to the improvement of heart patients' life quality and to the health care costs' reduction.

A positive reaction to the news from the stock market is expected in today's negotiations.

Abbott closed at $38.60 per share Dec. 27, up 18 cents, or 0.47%, from the previous trading day, with 6,633,668 shares traded on the New York Stock Exchange (NYSE) versus an average volume of 7.6 million over the last 10 trading days and an average volume of 8.6 million shares over the last three months.

The stock is more volatile than the stock market (beta = 1.48) and underperformed with 25.05% the Standard & Poor's 500 year to date.

Abbott Labs has a market capitalization of $56.83 billion and 1.47 billion shares outstanding. The percentage of shares held by insiders is 0.21% and by institutions is 70.50%.

The number of shares available for trading is 1.47 billion. The price-earnings (P/E) ratio (TTM) is 25.48, the EPS (TTM) is $1.51 per share, and the dividend yield is 2.76%.

The company has approximately $4.51 billion of cash on hand or $3.06 per share. The total debt (mrq) is $8.51 billion, and the book value per share (mrq) is $14.06.

As of today, analysts suggest buying shares of Abbott, and the average target price is $46.85 per share.

During the third quarter, First Eagle Investment (Trades, Portfolio), George Soros (Trades, Portfolio) and Richard Pzena (Trades, Portfolio) reduced their positions in Abbot Labs by 57.24%, 21.26% and 5.81% while Joel Greenblatt (Trades, Portfolio) sold out his position.

Ken Fisher (Trades, Portfolio) and Mario Gabelli (Trades, Portfolio) increased their positions by 0.39% and 0.07%.

Abbott is a member of the S&P 500 Dividend Aristocrats Index.

St. Jude Medical closed at $80.15 per share Dec. 27, up 32 cents or plus 0.40%, with a volume of 3,178,204 shares traded on the NYSE versus an average volume of 2.24 million traded over the last 10 trading days and an average volume of 2.41 million shares over the last three months.

As of Wednesday, 19 analysts out of a total of 20 suggest holding shares of St. Jude Medical, and the average target price is $81.96 per share.

St. Jude Medical has a market capitalization of $22.9 billion and approximately 285.72 million shares outstanding, of which 278.38 million can be traded on the NYSE, 2.43% is held by insiders, and 86.30% is held by institutions.

During the third quarter, John Rogers (Trades, Portfolio), David Dreman (Trades, Portfolio), Greenblatt and Gabelli reduced their positions in St. Jude Medical by 90.15%, 99.70%, 86.91% and 10.08%.

Leucadia National (Trades, Portfolio) and John Paulson (Trades, Portfolio) increased their positions by 166.0% and 107.69%.

Soros, Fisher and Keeley Asset Management Corp (Trades, Portfolio) sold out their positions while First Eagle Investment opened a position in St. Jude Medical and bought 545,389 shares of the company.

The company had $403 million in cash on hand and securities that can be readily converted into cash, as of the most recent quarter. The total debt amounted to $5.77 billion.

Disclosure: I have no positions in any stock mentioned in this article.

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This article first appeared on GuruFocus.