Investors Question Financial Sense of Abbott-St. Jude Deal


St. Jude is the patron saint of lost causes. Investors seem to be takingAbbott Laboratories’ $25 billion deal to buy St. Jude Medical in that spirit. Abbott’s market capitalization tumbled over $5 billion on Thursday after it announced the purchase of the medical devices company. The company’s problem is that the transaction looks to be destroying value.

Abbott is paying a $6.5 billion premium, about 37 percent above St. Jude’s closing share price on Wednesday. It forecasts cost savings of $500 million a year by 2020. Say about three-quarters of those come from cost cuts and ignore the remaining unreliable revenue enhancements. Taxed at Abbott’s effective tax rate of about 20 percent and capitalized on a multiple of 10, those would be worth $3 billion, but that figure has to be marked down since they won’t all materialize until 2020…

Investors Question Financial Sense of Abbott-St. Jude Deal

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