Abbott Labs To Buy Kos for $3.7 Billion
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Abbott Laboratories agreed to pay $3.7 billion in cash for Kos Pharmaceuticals Incorporated in a bid to strengthen its cholesterol-management business.
The Abbott Park, Ill., pharmaceutical company said early Monday that it will pay $78 a share in cash for Kos, Cranbury, N.J. That represents a 55% premium from Kos’s Friday closing price of $50.09. The stock shot up $26.90, or 54%, to $76.99 in recent trading.
Abbott’s shares were recently trading at $47.46, down 18 cents.
Analysts appeared to be pleased with the deal. “Clearly it’s a significant premium,” an analyst with BMO Capital Markets, Robert Hazlett, said. “It recognizes the assets that are not only there today, but in the pipeline for the near and long term.”
The acquisition gives Abbott Kos’s two lead drugs, Niaspan and Advicor, which treat multiple lipid disorders by raising high-density lipoproteins, or HDL, also known as “good cholesterol.” The drugs complement Abbott’s Tricor, another lipid management drug which lowers blood fats called triglycerides. The lipid management market is among the largest markets in the pharmaceutical industry, which Abbott estimates is worth $20 billion.
“The deal is a good strategic fit because Abbott had a relatively limited pharma pipeline and Kos’s products present opportunities for synergy with Abbott’s Tricor franchise,” a Prudential Equity analyst, Larry Biegelsen, said in a note.
Abbott expects the deal to dilute earnings by 2 cents to 3 cents a share in 2007. It estimates the transaction will be neutral or add to earnings in 2008 before “building to significant accretion thereafter.” It also sees a onetime charge for in-process research and development and integration expenses.
The company plans to use a combination of cash on its balance sheet and long-term debt to finance the acquisition. Following the announcement, Standard & Poor’s reaffirmed its AA rating and stable outlook on the company’s credit.
“Although this purchase distorts Abbott’s typically strong financial profile, we believe the company has the capacity and willingness to rapidly reduce these borrowings,” a Standard & Poor’s analyst, David Lugg, said.