Yahoo Finance Alere–Abbott Labs Is a Large, Strategic Deal for Arbitrageurs
Abbott Looks to Boost Its Diagnostics Business by Buying Alere
A relatively low-risk transaction
Lately, the deal flow for arbitrageurs has been dominated by inversion transactions and deals with a lot of antitrust risk. Health insurance mergers have tremendously wide spreads, and inversion deals will likely be political footballs during election season.
The Alere (ALR)–Abbott Laboratories (ABT) transaction is very much a bread-and-butter type of transaction, and arbitrageurs hope to make it the majority of their portfolios. It’s a large, strategic deal, Abbott is a high-quality buyer, and the deal makes commercial sense. While there is some potential for overlap in the diagnostics business, the companies do seem to have different focuses.
The most likely scenario is that the deal will close as advertised. While we don’t know if there was a process run, there are potential buyers out there. Siemens has been active in this space, and they are certainly large enough to absorb Alere with little problem. The premium paid is somewhat dear, although the multiples are not.
The biggest headache for merger arbitrage professionals is the overall financial environment. We’re seeing risk spreads widen as stock markets drop. Merger arbitrage spreads typically widen en masse as hedge funds face redemptions and professionals take risk off the table. In that scenario, deals such as Alere-Abbott would probably hold up the best, while private equity transactions would feel the most pain.
Other merger arbitrage resources
Other important merger spreads include the Cigna (CI)–Anthem (ANTM) deal, which is slated to close in 2H15. For a primer on risk arbitrage investing, read Merger arbitrage must-knows: A key guide for investors.
Investors who are interested in trading in the healthcare sector could look at the Health Care Select Sector SPDR ETF (XLV).
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