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Understanding Abbott’s Alere Acquisition: What We Can Expect

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Overview

On October 3, 2017, Abbott Laboratories (ABT) announced the completion of its acquisition of Alere, which has seen trouble since the initial announcement in February 2016. But Abbott decided to go ahead with the deal at a reduced price of $5.3 billion in April 2017.

ABT stock gained ~0.13% on October 3, 2017. The Vanguard Total Stock Market ETF (VTI) registered a price decline that day. VTI has ~0.37% of its total portfolio holdings in ABT.

Abbott’s diagnostics portfolio

With the completion of this acquisition, Abbott has likely strengthened its Diagnostics portfolio and established itself as the leading player in the point-of-care testing market, which is estimated to be worth ~$7 billion, according to Abbott.

Point-of-care testing is part of the ~$50-billion in-vitro diagnostics market. Other major players competing in this market space include Medtronic (MDT), Boston Scientific (BSX), and Thermo Fisher Scientific (TMO).

According to Abbott, with the addition of Alere business, Abbott now has ~$7 billion of diagnostics sales around the globe. This includes point-of-care testing division sales of ~$2.5 billion. In 3Q17, Abbott generated sales of ~$1.3 billion from its Diagnostics segment, excluding any contribution from Alere.

Expected deal synergies and accretion

Abbott expects the acquisition of Alere to add ~$475 million to the company’s total sales in 2017, while its adjusted earnings per share are expected to have a neutral impact. Abbott stated that the deal will not be earnings accretive in 2017 and didn’t provide any estimates for the impact in 2018.

That said, Abbott expects the acquisition to have a positive impact next year and going forward. Notably, prior to the amendments in the deal, Abbott expects the Alere acquisition to be earnings accretive to the tune of $0.12–$0.13 in the first year and ~$0.20 in the second year.

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