Abbott Laboratories has agreed to acquire Advanced Medical Optics Inc. (AMO) for USD$1.36 billion (AUD$2.03 billion) in a deal that launches Abbott into the eye-health market at a discount but also exposes it to a business that has slumped during the recession, according to the Dow Jones wire service.
It reports that Abbott paid USD$22 a share for AMO in a tender offer, a huge premium a closing price early last month of USD$8.85 but also a level where the stock was trading just four months ago. Abbott executives defended the valuation as they see the deal, valued at USD$2.8 billion including the assumption of debt, neutral to per-share earnings this year and positive next year.
Shares of Advanced Medical Optics Inc. had crumbled nearly 90 per cent last September and October as the market for laser-vision correction – for which the company is the top equipment maker – was severely damaged by economic pressure. AMO, which has been restructuring to lower costs, also is still recovering from a contact lens solution recall in 2007.
The company also has a big business for treating cataracts, which is an age-related issue and a market fuelled by demographics. Overall, Abbott sees AMO’s sales steadily growing in a high single digits range.
The deal’s value “is a fair price for what the acquisition brings to us,” said John M. Capek, executive vice president of medical devices at Abbott.
Mid January shares of AMO skyrocketed to more than double to USD$21.61.
Some analysts were concerned Abbott may have paid too much for AMO. The scepticism was fuelled further when Abbott executives said on a conference call that they had no competition in negotiations to buy AMO. JPMorgan analyst Michael Weinstein, told Abbott executives on the call that there may be “raised eyebrows” among Abbott shareholders who view Advanced Medical as a “distressed asset.”
“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,” said BMO Capital Markets analyst, Joanne K. Wuensch, who rates how the share market perform, wrote in a note to clients.
Wuensch said the deal places an enterprise value on Advanced Medical that is 2.4 times trailing 12 month revenue, versus a 1.7 ratio for the private-equity takeover of Bausch & Lomb in 2007 (a deal, incidentally, that Advanced Medical pursued before bowing out). Abbott executives defended the valuation, which at about 2.5 times Advanced Medical’s annual sales they said was in line with similar deals in the past.