Alere Inc. (ALR, Financial) announced July 7 that its shareholders, who hold approximately 72.5% of the company’s total volume of outstanding shares, approved the amended merger deal with Abbott Laboratories (ABT, Financial).
The amendment of the original merger agreement was reached by the two companies in early 2016, lowering the price from $5.8 billion to $5.3 billion.
The lowered price is the result of a new agreement the two companies reached for the settlement of differences that arose from issues regarding billing practices followed by Alere's toxicology unit. This and other issues led the U.S. Department of Justice to start investigating the company’s records.
The amended transaction, which is expected to close by the end of the third quarter, will see Abbott Labs paying Alere’s shareholders $51 per ordinary share.
Once the deal is closed, the diagnostic tests provider will become a subsidiary of Abbott.
Alere provides tests for the diagnosis of cardiometabolic and infectious diseases. The company also provides diagnostic tests used in toxicology.
With this merger, Abbott will also inherit a huge amount of debt - $2.85 billion in long-term debt as of March 31, and net of a current portion of $85.41 million. According to Alere’s financial statements, the debt, along with the company's strategy to support growth, impeded it from distributing dividends to shareholders in the recent past.
The company's total debt plus a current market capitalization of $4.4 billion, minority interest and preferred shares, net of a total amount of $601.5 million in cash on hand and securities, leads to an enterprise value of approximately $7.35 billion for an EV/Ebitda ratio of 28.40.
According to GuruFocus, Alere has a financial strength rating of 4 out of 10 and a profitability and growth rating of 4 out of 10.
Shares of Alere are currently trading around $50.35 per unit. The company has a price-sales (P/S) ratio of 1.85, a price-book (P/B) ratio of 3.64 and a price-earnings (P/E) ratio of -20.16. For Alere, analysts forecast an average EPS of $1.56 for full fiscal 2017. Multiplying that forecast by the forward P/E ratio of 26.36 yields a value of $41.12 per share. When the forward P/E ratio is multiplied by the 2018 average EPS forecast of $1.91, it yields a value of $50.35 per share.
Abbott Laboratories is trading around $48.44 per share with a P/E ratio of 50.41, a P/B ratio of 2.67 and a P/S ratio of 3.77. Abbott has a forward P/E ratio of 17.61. For full fiscal 2017, analysts forecast the health care company will report EPS of $2.47 on average.
Abbott distributes an annual dividend of $1.06 through quarterly payments of 26.5 cents, for a dividend yield of 2.19%.
Disclosure: I have no positions in any stock mentioned in this article.
