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J&J (JNJ) to Buy Abbott’s Vision Care Unit for $4.3 Billion

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Johnson & Johnson JNJ entered into a definitive agreement with Abbott Laboratories ABT under which it will acquire Abbott’s vision care business, Abbott Medical Optics (AMO) for $4.325 billion in cash.

Abbott Medical Optics' ophthalmic products cover three areas – cataract surgery, laser refractive surgery and consumer eye health (contact solution, eye drops, etc.) – which should be a strategic addition to J&J’s Acuvue contact lens business. Abbott Medical Optics reported sales of $1.1 billion for 2015.

Apart from broadening J&J’s vision care business, the buyout will introduce the health care giant to the fast growing cataract surgery market, with the addition of AMO’s world-class intraocular lenses used in cataract surgery.

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According to the National Eye Institute, more than half of the U.S. population have cataract or have had cataract surgery by the age of 80. Moreover, in 2016, it has been estimated that nearly one in four cataract surgeries will be performed on people aged less than 65 years.

The transaction is expected to close in the first quarter of 2017, subject to shareholder approval. Abbott Medical Optics will be part of J&J’s Medical Devices segment. The deal is expected to be immediately accretive to J&J’s adjusted earnings after the close. The deal will not impact Abbott’s earnings target for 2017.

We believe that the AMO divesture makes sense for Abbott, as it has lately been making strategic acquisitions in the cardiovascular devices and diagnostics segment. In April this year, it entered into a definitive agreement to acquire St. Jude Medical Inc. STJ, a premier medical device company with a leading position in heart failure devices, atrial fibrillation and cardiac rhythm management for $25 billion. St. Jude Medical buyout will complement its cardiovascular devices business and strengthen its long-term growth potential.

The $5.8 billion acquisition of Alere, Inc. ALR announced in Jan 2016 should bolster the diagnostics business significantly. While the St Jude’s deal is expected to close in the fourth quarter, the Alere deal has run into trouble.

In April, Abbott had requested to call off the deal. In August, Alere filed a lawsuit against Abbott in the Delaware Chancery Court to force Abbott to complete the acquisition.

While J&J carries a Zacks Rank #2 (Buy), Abbott has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

In a separate press release, J&J announced that its subsidiary, Janssen, has received a positive opinion from the Committee for Medicinal Products for Human Use (CHMP) for a label expansion of its plaque psoriasis drug Stelara. The CHMP has recommended marketing authorization for Stelara in the EU for the treatment of adult patients with moderate-to-severely active Crohn's disease. The drug is also under review in the U.S. for the same indication.

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