Diagnostics & Imaging Week
Abbott (Abbott Park, Illinois) has agreed to acquire Advanced Medical Optics (AMO; Santa Ana, California) for $22 a share in cash, or about $2.8B, including debt. That price took some analysts by surprise last Monday.
"While we are not surprised that AMO was acquired, we were surprised by the price, at 149% premium to [AMO's] closing price of $8.85 as of Friday," Joann Wuensch, a med-tech analyst with BMO Capital Markets, wrote in a research note Monday. "Given the lack of a competitive bidding process, the stock's previous close, and the multiple hurdles ahead of it, the deal price seems high to us."
AMO is comprised of three segments: cataract surgery, laser vision correction (LASIK), and eye care products. Abbott and AMO expect the transaction to close in the first quarter of 2009. The boards of both companies have already approved the deal.
Larry Haimovitch, president of Haimovitch Medical Technology Consultants (Mill Valley, California) and a regular contributor to Diagnostics & Imaging Week, said that as a follower of the ophthalmology industry, he found the acquisition very surprising, given that Abbott has never participated in the ophthalmology space before.
"I was very surprised. I wasn't expecting an acquisition [of AMO], number one, and number two I was very surprised it was Abbott ... it's a whole new thrust for them," he told D&IW.
While the price was surprising relative to the recent market price, Haimovitch said historically it was not all that surprising because AMO's stock traded in the $20 range as recently as August. Overall, he said the acquisition is a positive move for the ophthalmology space.
"Now we have a new company with significant resources that may be able to acquire some of these smaller and interesting technologies," Haimovitch said. "Ophthalmology is a very innovative space and the doctors are highly adoptive [of new technology] ... I could see Abbott making several other acquisitions to round out their portfolio. I think it's very positive for the space."
According to the companies, AMO holds the No. 1 position in LASIK surgical devices globally, the No. 2 position in the cataract surgical device market and the number three position in contact lens care products. The company was founded in 2002 as a spinoff from Allergan (Irvine, California). It has about 3,700 employees, operations in 27 countries and markets products in about 60 countries.
"Through superior vision care technologies and service, AMO has established itself as a leader in this multi-billion dollar medical device segment. With AMO, Abbott is enhancing and strengthening its diverse mix of medical device businesses and gaining a leadership position in another large and growing segment," said Miles White, CEO/chairman of Abbott. "Additionally, Abbott's significant global presence will help drive growth opportunities for this business, especially in international markets, where favorable demographics are driving demand for advanced eye care procedures and products."
Jim Mazzo, AMO's CEO/chairman, will be remaining with Abbott as president of AMO, which will operate as an independent entity within the Abbott corporate structure.
"This transaction underscores the fundamental value of the AMO franchise, the talent and expertise of our global team, and the strength of our product offering, pipeline and strategy to provide refractive vision care for people of all ages," Mazzo said. "Joining forces with Abbott will fortify our position as a global ophthalmic medical device leader and enhance our ability to serve eye care practitioners and patients around the world."
Abbott said it agreed to launch a tender offer by Jan. 26 to buy all outstanding shares of AMO at $22 a share. The tender offer is conditioned on the tender of a majority of the outstanding shares of AMO's common stock on a fully diluted basis.
The $2.8 billion estimated value of the deal is based on AMO's roughly 62 million fully diluted shares outstanding, plus estimated net debt at the time of closing, the company noted.
Abbott said it expects the transaction to be neutral to ongoing earnings per share in 2009, and accretive beginning in 2010, both before one-time transaction-related costs, which will be provided at a later date. Abbott was the only company that negotiated with AMO.
According to AMO and Abbott, population growth and demographic shifts are increasing demand for advanced vision care technologies across all geographies and age groups. For example, about 60% of people over 60 have cataracts, which are the leading cause of vision loss among this age group. It is estimated that 700 million people globally are 60 years or older, and that number is expected to grow to one billion over the next decade.
"With AMO, Abbott will immediately become a global leader in vision," said John Capek, executive VP of medical devices at Abbott. "The business is poised for long-term growth, driven by advances in refractive surgery technologies, including LASIK, and an aging global population."