Yahoo Finance What Are the Basics of the St. Jude Medical-Abbott Transaction?
Huge Deal in the Healthcare Space: Abbott Buys St. Jude Medical
Basics of the transaction
Abbott Labs (ABT) is buying St. Jude Medical (STJ) for $85 in cash and stock or about $30 billion if you include assumed debt. The companies are guiding for an end of 2016 closing date. There were rumors last August that Abbott was in talks to buy St. Jude, but the company denied that talks were taking place. Abbott was asked repeatedly on the conference call whether it had changed its mind about St. Jude. The company simply stated that last August it wasn’t in talks with St. Jude. Abbott denied the rumor because it wasn’t true. Many analysts read into Abbott’s statement that it wasn’t interested in St. Jude as well, but Abbott denied that this was its intent.
Conditions
The following conditions need to be satisfied for the merger to close:
St. Jude shareholder vote
Abbott’s filing of a premerger notification report to comply with the Hart-Scott-Rodino Antitrust Improvements Act of 1976
U.S. Securities and Exchange Commission approval of the proxy statement
other foreign antitrust approvals (not specified)
While it isn’t a condition to the merger, Abbott will issue about $3 billion in common stock in a secondary offering. Abbott has the financing in place to do both the Alere (ALR) deal and the St. Jude deal. The Alere deal is on the rocks at the moment.
No-shop provision and breakup fees
St. Jude has a no-shop provision with a fiduciary out. This means that St. Jude isn’t allowed to solicit other buyers during the pendency of the merger. However, if the company receives an unsolicited bid, it’s allowed to fulfill its fiduciary duty to shareholders and discuss the merger with the new party. If the board of directors accepts a higher offer, it will owe Abbott a termination fee of $685 million.
Other merger arbitrage resources
Other important merger spreads include the Cigna (CI)-Anthem (ANTM) deal. It’s slated to close in 2H16. 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 should look at the S&P SPDR Healthcare ETF (XLV)
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