Is Thoratech Getting Enough Premium in its Buyout?

Both companies announced the approval for a definitive agreement in which St. Jude will acquire Thoratec for $63.50 per share in a cash transaction valued at roughly $3.4 billion. The all-cash transaction represents a premium of 35.4% from Friday’s close of $46.89. The transaction is expected to be completed in the fourth quarter of 2015.

This transaction is expected to be accretive to adjusted earnings per share in 2016. St. Jude Medical also expects the combined company to capture revenue and technology synergies following the completion of this transaction.

Ultimately, this transaction should accelerate St. Jude’s growth strategy by adding Thoratec’s products and technologies to St. Jude’s heart failure portfolio. Together, the combined organization will offer physicians and patients innovative solutions across its heart failure care continuum.

By combining the capabilities and leading technologies of both companies, the new combined company will be able to expand access, reduce costs and advance heart failure therapies on a global basis.

Daniel J. Starks, chairman, president and CEO of St. Jude, said:

Thoratec’s strong core business and rich portfolio of new products complement St. Jude Medical’s innovation-based growth strategy and will benefit patients, customers, employees and shareholders of both companies. The addition of Thoratec’s leading ventricular assist device portfolio expands and enhances St. Jude Medical’s established presence in heart failure therapies. We look forward to welcoming Thoratec employees to our company at such an exciting time in our history.

The highest price target from analysts is only $55, a fair amount below the buyout price. A couple calls from analysts within the past week were:

• Northland Securities reiterated an Outperform rating with a $55 price target.
• Oppenheimer has an Outperform rating and raised its price target to $52 from $49.

Shares of Thoratec were up 9.5% to $63.07 Wednesday morning. The stock has a consensus analyst price target of $47.55 and a previous 52-week trading range of $22.50 to $46.97.

St. Jude shares were up 1% at $77.48, in a 52-week range of $54.80 to $77.71. The consensus price target is $79.43.

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