Analysts hail J&J’s offer for Abbott unit
JOHNSON & Johnson (J&J) has agreed to buy Abbott Laboratories’ eye-surgery equipment unit for $4.33bn, moving the world’s biggest maker of healthcare products towards its goal of boosting its three core businesses.
The deal was expected to close in the first quarter of 2017, the companies said on Friday in separate statements.
The unit, called Abbott Medical Optics, makes equipment used in surgeries to repair cataracts and in Lasik procedures to improve vision, as well as eye drops and solutions. It generated $1.13bn in sales for Abbott in 2015.
J&J has been chasing deals for all three of its main businesses to boost growth and offset potential competition for prescription medicines, its largest unit. For Abbott, the divestiture is another step in CEO Miles White’s effort to refocus the company since spinning off AbbVie in 2013 and agreeing in 2016 to acquire medical testing company Alere and another device maker, St Jude Medical.
Abbott’s optics unit was “a selfcontained business and had very little synergy with anything else in their device portfolio”, said Debbie Wang, an analyst at Morningstar. The company wanted to take its medical device division “down the path of these more sophisticated products that St Jude offers”, she said.
J&J’s medical devices and diagnostics business accounted for 36% of revenue in 2015, down from 41% in 2012. Consumer products, J&J’s third major unit, had 19% of sales in 2015.
Abbott paid $2.8bn for the medical optics unit in 2009. The sale will give Abbott a muchneeded infusion of cash. It is in the middle of purchasing St Jude Medical for $25bn and agreed to buy Alere for $5.8bn, an acquisition that has hit numerous roadblocks since it was announced in February.
White has said he has financing in place to complete both deals, although it could involve issuing additional equity, a move investors frowned on. The extra cash obtained from selling the fast-growing eyecare business would ease the financial demands on the company.
“A lot of people in the market are going to look at this and say this will preclude them from having to do the equity raise, which investors would like,” said Jonathan Palmer, an analyst with Bloomberg Intelligence.
“It makes the financial aspects of both deals easier to manage or swallow,” and it made completion of the Alere acquisition more probable, he said.
Abbott was focused on building a leadership position in cardiovascular devices and expanding in diagnostics, White said in the company’s statement. St Jude is the leading maker of devices to treat heart failure, while Alere is the leading maker of medical tests that are conducted at the point of care.
The latest deal made sense from a product perspective for both J&J and Abbott, Palmer said. While the ophthalmology business was strong in surgical equipment, it did not have contact lenses, a difficult area to develop organically. J&J already sold contact lenses, and the acquisition would boost its surgical offerings, Palmer said.
Alere shares rose 2.7% to close at $44.07 in New York, well below Abbott’s $56-a-share offer. Abbott’s shares increased 1.8% to $41.87. J&J fell less than 1% to $118.25.