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Investors Look for Gains as Abbott Labs Set to Acquire Alere

Zacks

Abbott Laboratories ABT provided some good news for investors as the much-contentious merger of the company with Alere is a step closer to completion. On majority of Alere shareholders’ recent approval in favor of the merger, the deal is now expected to close by the end of third-quarter 2017. However, it is still subject to satisfaction of the customary closing conditions, including applicable regulatory approvals.

This news follows the announcement of an amendment of the original merger agreement in April. Per the amended terms of the agreement, 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 completion. This results in an expected, new equity value of approximately $5.3 billion, lower that the originally estimated equity value of almost $5.8 billion.

With this amendment, both the companies agreed to dismiss their respective lawsuits that they were engaged in on issues regarding the pending merger. Significantly, the original contract was made on Feb 1 2016.

Our take


Abbott had earlier stated that with the successful completion of this transaction, its total diagnostics sales should exceed $7 billion. The company also expects to emerge a lead player in the $5.5 billion point-of-care diagnostic segment with this consolidation.

The acquisition would enable Abbott gain an access to new channels and geographies, including entry into fast growing outlets, such as doctors’ offices, clinics, pharmacies and at-home testing. It will also add Alere’s complementary portfolio of diagnostic products, comprising tests for infections such as HIV, tuberculosis, malaria and dengue. Notably, 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 combined business will offer several options of tests in a broad array. For instance, infectious disease, molecular, cardiometabolic and toxicology testings. Plus, this union would definitely expand Abbott Labs’ platforms to include benchtop and rapid strip tests. Although Alere has generated over half its total sales from the U.S. alone, the company has a growing presence in key international markets with a potential to strengthen the Abbott’s business ahead in these territories.

Price Performance

Over the past three months,Abbott’s share price has outperformed the Zacks categorized Medical – Instruments sub-industry. The stock has gained 11.2%, higher than the broader industry’s gain of 9.8%.

Zacks Rank and Other Key Picks

Abbott currently carries a Zacks Rank #2 (Buy). Other top-ranked medical stocks are Mesa Laboratories, Inc. MLAB, Inogen, Inc. INGN and Align Technology, Inc. ALGN. Notably, Mesa Laboratories and Inogen sport a Zacks Rank #1 (Strong Buy), while Align Technology carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Mesa Laboratories has a positive earnings surprise of 2.84% over the last four quarters. The stock has roughly gained 10.5% over the last three months.

Inogen has a long-term expected earnings growth rate of 17.5%. The stock has rallied around 23.8% over the last three months.

Align Technology has an expected long-term adjusted earnings growth of almost 24.1%. The stock has surged nearly 30.5% over the last three months.

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