Thoratec Price May Be Too High for Medtronic, Abbott: Real M&A

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Thoratec Corp. may appeal to other suitors, but the rich price tag will probably keep them at bay.

The maker of implants that aid failing hearts has 30 days to search for a better offer than the $63.50 a share in cash that St. Jude Medical Inc. has agreed to pay. Thoratec shares closed on Wednesday at $63.46 in New York, which means investors aren’t counting on the so-called go-shop period being fruitful.

The $3.26 billion total transaction value is about 42 times what Thoratec earned before interest, taxes, depreciation and amortization in the past 12 months. That’s already the second-highest valuation among medical-device deals of size announced in the past five years and will be barely accretive for St. Jude next year, according to data compiled by Bloomberg.

Leerink Partners’ Danielle Antalffy flagged Medtronic Plc, Abbott Laboratories and Johnson & Johnson as possible buyers for Thoratec. JPMorgan Chase & Co.’s Michael Weinstein said a deal could also make sense for Edwards Lifesciences Corp. Still, Weinstein sees low odds of a rival bidder because of “the challenges in justifying a higher price,” the analyst wrote in a report Tuesday.

Upside Potential

Should a rival bidder emerge, Antalffy estimates that Thoratec could fetch about $70 a share, about a 10 percent boost from what St. Jude is offering.

At that price and assuming at least $50 million of cost synergies, Medtronic, Abbott and J&J would barely break even, data compiled by Bloomberg show. For Edwards, which has a lower cost of debt, the transaction would boost earnings by almost 7 percent, the data show.

Representatives for Medtronic, Abbott and Edwards declined to comment on whether they’re considering a purchase of Thoratec. A representative for J&J didn’t respond to requests for comment.

Abbott Chief Executive Officer Miles White, speaking on the company’s earnings call Wednesday, signaled his willingness to use cash or borrow for acquisitions. He said that Abbott needs greater breadth in the cardiovascular and structural heart markets.

“You probably should not assume that we’re just sitting here on our hands accumulating,” White said. “Investors expect us to deploy cash, and we do, and we will.”

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