What happened

Shares of Quidel Corporation (NASDAQ:QDEL), a company focused on diagnostic testing equipment, rose 11% as of 11:45 a.m. EDT on Tuesday in response to the announcement that it is acquiring a few product lines from Alere (NYSE:ALR).

So what

Quidel stated on Monday that it has signed a deal to buy Alere's Triage MeterPro cardiovascular and toxicology assets as well as the company's B-type Naturietic Peptide (BNP) assay business. Alere is divesting these product lines in an effort to appease regulators so they will bless the company's upcoming takeover by Abbott Laboratories.

This represents a sizable deal for Quidel since Alere's Triage and BNP business lines generated about $197 million in total revenue last year. For comparison, Quidel's revenue in 2016 was only $191 million, so this deal will single handily double the company's top line. What's more, Quidel negotiated a price of only $400 million for this transaction plus another $40 million in contingent consideration, which values this deal at about 2.2 times sales. That's less than half of Quidel's current price-to-sales ratio of 5.9, so it appears that the company is buying these product lines at a very good price. 

Business men shaking hands and handing over money.

Image source: Getty Images.

Douglas Bryant, Quidel's CEO, offered up the following commentary on the deal:

"We believe there are substantial benefits to be realized as we bring these strong organizations together, further establishing Quidel's platform for growth and shareholder value creation opportunities."

Traders appear to share Bryant's optimism, which is why Quidel's stock is jumping Tuesday.

Now what

Quidel expects to fund this transaction with cash on hand and through "committed financing." The deal is expected to close in the third quarter of 2017, though it is worth noting that it is contingent on Abbott's merger with Alere going through as well. That fact adds an additional layer of risk that potential shareholders need to carefully consider.

Nonetheless, this deal promises to instantly double Quidel's revenue, enhance its product lineup, and extend its geographic diversity. Given those advantages and the reasonable $440 million price tag, it is easy to understand why shares are soaring on Tuesday.

Brian Feroldi has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.