Shares of Exact Sciences (EXAS), the cancer screening and treatment provider, surged by about 18% on Thursday morning after it agreed to merge with long-standing healthcare company Abbott Laboratories (ABT) in a $21 billion deal. In contrast, ABT stock fell by over 2%.
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Abbott, which specializes in diagnostics, medical devices, and nutritional products, announced the $105-per-share deal. It noted that both companies will work together to “expand access to life-changing diagnostics” and also “help more people detect and manage cancer at its earliest, most treatable stages.”
Abbott Eyes $12B in Annual Sales from Acquisition
Abbott was established over a century ago and is known for the instant formula Similac. As part of the arrangement, Abbott plans to take on about $1.8 billion of Exact Sciences’ debt.
The Illinois-based company expects its acquisition of Exact Sciences — when the firm becomes its subsidiary after the deal is finalized — to fetch its diagnostics sales business more than $12 billion every year.
Robert Ford, Abbott’s chairman and CEO, believes that Exact Sciences’ product pipeline complements Abbott’s portfolio. Diagnostics products represent one of the biggest business segments for Abbott, as the image below shows.
Wall Street Cheers Exact Sciences Takeover
Following the news, several Wall Street analysts have raised their price targets on ABT stock, cheering the planned acquisition as advantageous for Abbott. For instance, BTIG analyst Mark Massaro reaffirmed his Buy rating on ABT stock and issued a price target of $145, implying about 18% upside.
Massaro believes that the acquisition will open up a new source for revenue growth for Abbott, thereby offsetting the decline in the legacy medical devices firm’s COVID-19 testing sales.
Meanwhile, the deal is still subject to regulatory approvals. In addition, while the acquisition offer has been approved by the board of directors of both firms, it will also have to receive the go-ahead of Exact Sciences’ shareholders.
The deal is expected to close during the second quarter of next year. Under the arrangement, Exact Sciences is expected to retain its headquarters in Madison, Wisconsin, with Kevin Conroy, its current CEO and chairman, remaining in an advisory role to support the transition process.
Is ABT a Good Stock to Buy?
Across Wall Street, Abbott’s shares currently have a Strong Buy consensus rating based on 16 Buys and two Holds issued by analysts over the past three months.
At $147.13, the average ABT price target indicates over 19% upside.
