Abbott to buy St. Jude for $25 billion to boost heart devices

Thu Apr 28, 2016 12:56pm EDT
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By Caroline Humer and Bill Berkrot

(Reuters) - Abbott Laboratories (ABT.N: Quote) said on Thursday that it would buy St. Jude Medical Inc STJ.N in a $25 billion deal to expand its heart device business, but investors worried that the acquisition would not pay off as promised.

Medical equipment makers are under pressure to offer a wider portfolio of products to hospital customers, which have also been through a wave of mergers that have increased their power to negotiate on pricing.

Abbott said its deal would help it compete more effectively against larger rivals Medtronic Plc (MDT.N: Quote) and Boston Scientific Corp (BSX.N: Quote), but its shares fell nearly 6 percent.

Abbott Chief Executive Officer Miles White defended the deal on a conference call with analysts, saying it would add to earnings per share in the first full year after it closes.

The company said St. Jude's devices to treat heart failure and abnormal heart rhythm complement its own cardiovascular products. White also said on CNBC that while St. Jude has had low-growth years, it has new products to introduce over the next few years.

"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 is also trying to buy diagnostics company Alere Inc (ALR.N: Quote) for $5.8 billion and has a plan in place to borrow money for both it and St. Jude. Still, some investors have doubts it will complete the Alere deal because the U.S. government is investigating that company over sales practices.

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

The ticker and trading information for St. Jude Medical is displayed where the stock is traded on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., April 28, 2016.  REUTERS/Brendan McDermid