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Abbott to Gain from Alere's Takeover Due for Oct 3 Closure

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Investors keen on the consolidation of Abbott Labs (ABT - Free Report) with Alere may expect that much-awaited good news to arrive soon. Per Abbott’s latest update, with all the necessary regulatory clearances getting fulfilled for the closure, the company finally plans to complete the hugely contentious acquisition of Alere, Inc., on Oct 3, 2017.

Notably, after a year’s rollercoaster ride to overcome the regulatory hurdles, both Abbott and Alere had progressed with the merger process based on certain amended terms of the original agreement.

Per the amended agreement clauses (announced earlier in April), Abbott has agreed to pay $51 per common share to acquire Alere, a reduction from the earlier deal of $56 per common share in cash upon the transaction’s conclusion. This results in an expected, new equity value of approximately $5.3 billion, lower than the originally estimated equity value of almost $5.8 billion.

Our Take

Abbott has stated that with the successful wrap up of this transaction, its total diagnostics sales should be $7 billion. The company also anticipates to emerge a lead player in the $7 billion point-of-care diagnostic space within the broader $50 billion in-vitro diagnostics market with this takeover. The combined entity is expected to generate approximately $2.5 billion in point of care testing sales worldwide.

The buyout would also enable the company to gain an access to new channels and geographies, including entries into fast growing outlets, such as doctors’ offices, clinics, pharmacies and at-home testing. More to that, Alere’s complementary portfolio of diagnostic products, comprising tests for infections such as HIV, tuberculosis, malaria and dengue will be added to Abbott’s portfolio. Significantly, Alere develops simple, rapid tests, including Alere i — the molecular test for flu and strep — to deliver reports in less than 15 minutes.

Hence, the shared business will offer several options of tests in a broad array, for instance, infectious disease, molecular, cardiometabolic and toxicology testings. Also, this union would definitely expand Abbott Labs’ platforms to include benchtop and rapid strep tests. Although Alere would hitherto generate over half its total sales from the United States alone, the company has a growing presence in key international markets with potential to strengthen Abbott’s footprint ahead in these territories.

Price Performance

Over the past three months, Abbott’s share price has outperformed the broader industry it belongs to. The stock has gained 9.5% versus the industry’s loss of 0.7%.

Zacks Rank and Other Key Picks

Abbott currently carries a Zacks Rank #3 (Hold). Some better-ranked medical stocks are IDEXX Laboratories, Inc. (IDXX - Free Report) , Luminex Corp. (LMNX - Free Report) and Masimo Corp. (MASI - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

IDEXX Laboratories has a positive earnings surprise of 9.3% over the last four quarters. The stock has roughly surged 37.5% over the last year.

Luminex Corp. has a long-term expected earnings growth rate of 16%. The stock has gained around 22.2% over the last month.

Masimo has an expected long-term adjusted earnings growth of almost 14%. The stock has rallied nearly 29% year to date.

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