Shares of Abaxis, Inc. skyrocketed soon after its acquisition news grabbed headlines. The stock jumped more than 16% yesterday following animal health company Zoetis Inc.’s (ZTS - Free Report) announcement to buy Abaxis for an approximate deal value of $2 billion.
The Deal at a Glance
Zoetis has made an all-cash offer of $83 per share to Abaxis shareholders. This is a 15.7% premium to the close of Abaxis’ share price at $71.75 on May 14, denoting the price just before the news release. Banking on this exciting deal, shares of Abaxis rose to $83.78 on Wednesday, reflecting an all-time high for the company and later closed at $83.34, a price higher than the offer value.
The transaction is expected to complete before the end of 2018, subject to customary closing conditions, regulatory approvals and Abaxis stakeholders’ consent.
Expected Synergy Benefits
With the adoption of Abaxis’ point-of-care diagnostic instruments, Zoetis expects the consolidated company’s veterinary diagnostics category to grow faster than the animal health industry. Per management, the integration will bring in significant synergy benefits for the company.
Abaxis stated that it has recently invested in expanding operations across Europe, Latin America and the Asia Pacific Region with 20% revenues expected to be drawn internationally in fiscal 2018. Meanwhile, Zoetis already has substantial global presence and direct veterinary customer relationships to deliver greater value to more customers worldwide. Undoubtedly, the buyout will accelerate growth for the combined entity’s overseas business.
Per a Markets and Markets report, the veterinary diagnostics market is anticipated to witness a CAGR of 9.3% between 2017 and 2022 to reach a value of $3.62 billion by 2022.
Financial Impact of the Acquisition
On an adjusted basis, Zoetis does not expect any immediate material impact on the merged company’s 2018 earnings. The transaction is however, likely to be accretive to the bottom line in 2019.
Share Price Performance
In the past three months, Abaxis’ shares have rallied 20.7%, outperforming the industry’s 3% gain.
Zacks Ranks & Key Picks
Abaxis currently carries a Zacks Rank #3 (Hold). Two better-ranked stocks in the broader medical space are Genomic Health, Inc. (GHDX - Free Report) and Varian Medical Systems, Inc. (VAR - Free Report) .
Genomic Health has an expected growth rate of 187.5%. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Varian Medical has a projected long-term growth rate of 8%. The stock carries a Zacks Rank #2 (Buy).
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