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Abbott Laboratories (ABT - Analyst Report) announced a definitive agreement to acquire Russia-based pharmaceutical manufacturer Veropharm for approximately $395 million – $495 million (13.6 billion rubles - 17 billion rubles).

As per the terms of the agreement, Abbott Labs will acquire Limited Liability Company Garden Hills, the holding company that currently owns a controlling interest in Veropharm.

The purchase price is dependent on Garden Hills' stake in Veropharm at the time of the closure of the deal.

We note that Garden Hills currently has more than 80% stake in Veropharm but is expected to own more than 95% by the time the transaction is closed. In addition, Abbott Labs will also assume net debt of approximately $136 million.

The acquisition of Veropharm will provide Abbott Labs a portfolio of medicines, which will complement its current pharmaceutical therapeutic focus areas of women's health, central nervous system, cardiovascular and gastroenterology.

Additionally, Abbott Labs will establish a manufacturing presence in Russia upon the closure of the transaction through its ownership of Veropharm's existing production facilities. It will also acquire ownership of a new state-of-the-art manufacturing facility that is currently being developed by Veropharm. Abbott Labs also intends to leverage its manufacturing expertise to expand Veropharm's capabilities and boost the existing infrastructure.

The acquisition is expected to add approximately $150 million to the top line in 2015. The transaction is expected to close in the fourth quarter and will not impact Abbott Labs’ results in 2014.

Our Take

Abbott Labs currently carries a Zacks Rank #3 (Hold).  Emerging markets are key focus areas for Abbott Labs. The acquisition of Veropharm will broaden Abbott Labs presence in Russian markets.

We remind investors that Abbott Labs became a diversified medical products company, focusing on branded generic pharmaceutical, medical devices, diagnostic and nutritional businesses following the separation of its research-based pharmaceuticals business into a new company, AbbVie Inc. (ABBV - Analyst Report), in Jan 2013.

The business environment was challenging in 2013 due to austerity measures undertaken by developed markets. Hence, Abbott Labs' efforts to broaden its presence in the emerging markets will help the company to combat the challenging business environment elsewhere in the world and maintain top-line growth.

Some better-ranked stocks in the broader healthcare sector include Allergan (AGN - Analyst Report) and Bayer (BAYRY - Analyst Report). While Allergan carries a Zacks Rank #1 (Strong Buy), Bayer is a Zacks Rank #2 (Buy) stock.

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