Abbott enters eye arena with $1.4 billion AMO deal
NEW YORK (Reuters) - Abbott Laboratories Inc (ABT.N) plans to buy Advanced Medical Optics EYE.N for nearly $1.4 billion, making it the leader in Lasik laser vision correction and second-biggest player in cataract surgical lenses.
The $22-per-share deal, announced on Monday, represents a nearly 150 percent premium for AMO, which had lost almost two-thirds of its value in recent months as the weak economy cut demand for elective Lasik procedures.
Abbott, which currently sells no eye products, will become an instant leader in the arena, furthering a diversification strategy that has made it one of the top-performing large U.S. healthcare companies during the economic downturn.
"AMO is a depressed, distressed asset, not so much because of the product portfolio, but because of under-management and a cyclical, tough environment for Lasik," Jefferies & Co analyst Peter Bye said. He called the steep premium justifiable for a long-term strategic buyer like Abbott.
Including $1.4 billion in debt, Abbott values the transaction at about $2.8 billion, making it one of the biggest recent healthcare deals at a time when depressed share prices are making many companies easier prey.
AMO shares surged 144 percent to $21.63 in midday trading from their Friday close of $8.85. AMO had traded at $24.90 in June before the weak economy hurt the Lasik business.
The company is the No. 3 player in contact lens care products, a category also hurt by the deteriorating economy.
Santa Ana, California-based AMO said in November it would reduce its workforce by about 190 positions, or about 5 percent, as it cuts costs.
Shares of Abbott, whose current products include prescription drugs, medical diagnostics and stents to prop open coronary arteries, fell 1.2 percent to $50.54.
Abbott executives on a conference call with analysts described the deal as a "call option" on a recovering economy, saying sales from AMO's Lasik and cataract businesses should grow in the "teens" range once the global economy gets back on its feet.
But J.P.Morgan analyst Michael Weinstein cautioned that the deal's potential worth remains to be seen.
"The returns on this acquisition may not be as easy as prior deals, or at a minimum should take longer to bear themselves out," Weinstein said in a research note.
Abbott and AMO expect the transaction, which was approved by both company boards, to close in the first quarter of 2009.
Before one-time costs tied to the deal, suburban Chicago-based Abbott expects the transaction to be neutral to ongoing earnings per share in 2009, and add to earnings beginning in 2010.
Abbott on Monday forecast 2009 earnings of $3.65 to $3.70 per share, reflecting growth of at least 10 percent.
Analysts on average had been looking for $3.67 prior to announcement of the AMO deal, according to Reuters Estimates.
Abbott also reaffirmed its 2008 earnings forecast of $3.31 to $3.33 per share, excluding specified items.
Abbott shares have fallen 14 percent in the past year, compared to a 24 percent decline for the American Stock Exchange Pharmaceutical Index .DRG of large U.S. and European drugmakers. AMO shares had fallen 58 percent through Friday.
(Reporting by Ransdell Pierson, Lewis Krauskopf and Edward Tobin in New York, and Susan Kelly in Chicago, editing by Dave Zimmerman and Gunna Dickson)
