Health care giant Abbott Laboratories (ABT) has reached a deal to acquire medical device maker St. Jude Medical (STJ) in a cash-and-stock deal valued at $25 billion.
The companies revealed Thursday that they had agreed to a tie-up that would create a global medical devices giant with specialties such as cardiovascular, diabetes and vision. The deal comes as medical device companies, hospitals and insurers are jockeying for pricing power in a rapidly shifting marketplace.
Abbott CEO Miles White said on a conference call that St. Jude's "highly competitive" portfolio of devices will help the combined company reduce health care costs and improve outcomes for patients.
"Together we will compete in nearly every area of the cardiovascular device market," he said.
The deal will require regulatory approvals in a year in which the Obama administration has closely scrutinized mergers and acquisitions. But the companies said they expect to close the deal in the fourth quarter.
Abbott agreed to pay $46.75 in cash and 0.8708 shares of its common stock for every share of St. Jude Medical. Taken together, the deal equals about $85 per share of St. Jude stock, reflecting a 37% premium on Wednesday's closing price of $61.97.
St. Jude shares soared 25.6% to close at $77.79 Thursday, while Abbott shares fell 7.8% to $40.42.
On Thursday's conference call, analysts repeatedly peppered White with questions over the company's denial last August that it was negotiating a deal to acquire St. Jude for a reported $25 billion.
"There was absolutely no truth to the rumor and no communication between the companies. Nothing," White said. "At that time the rumor was absolutely false, and that’s what we said."
Abbott plans to absorb or refinance St. Jude's $5.7 billion in debt and issue new debt to pay for the cash part of the acquisition.
Abbott Chief Financial Officer Brian Yoor said the company expects to reduce its ratio of debt to earnings before interest, taxes, depreciation and amortization from 4.5-to-1 after the deal is completed to 3.5-to-1 in 2018. But he said the company would shrink share buybacks to help pay down debt.
The combined company expects to deliver "both sales and operational benefits" resulting in a $500 million pretax boost by 2020, according to a statement. It was not immediately clear whether those "synergies" include any job cuts. St. Paul-based St. Jude has about 18,000 employees worldwide. Abbott Park, Ill.-based Abbott has about 74,000.
The companies emphasized the strength of their combined position in cardiovascular medical devices, with total sales of about $8.7 billion in what they have estimated as a $30 billion market.
St. Jude's products include catheters, heart valves and pacemakers. Abbott's wide range of products includes pharmaceuticals, nutritional items and contact lenses.
Follow USA TODAY reporter Nathan Bomey on Twitter @NathanBomey.
