What happened

Shares of Glaukos (NYSE:GKOS) plummeted 21.3% in August, according to data from S&P Global Market Intelligence. For context, the S&P 500 index, including dividends, fell 1.6% last month.

The California-based company is involved in developing and marketing surgical devices and drugs to treat glaucoma.

As a result of its August pullback, Glaukos stock's 2019 performance is trailing that of the broader market. It's up 15.7% through Sept. 6, while the S&P 500 has returned 20.5% over this period. 

A bearded man's eyes being examined by optometrist or ophthalmologist using a phoropter.

Image source: Getty Images.

So what 

We can attribute Glaukos stock's poor performance last month to the company's August 7 announcement that it was acquiring fellow hybrid ophthalmic medical technology and pharmaceutical company Avedro (NASDAQ:AVDR), which focuses on treating corneal disease and disorders, in an all-stock transaction. Shares of Glaukos sank 11.2% the following day, while Avedro stock soared 36%.

Under the terms of the deal, Avedro's shareholders will receive 0.365 shares of Glaukos stock for every share of Avedro they own. The transaction is expected to close in the fourth quarter of this year. 

Glaukos CEO Thomas Burns touted the synergies of the deal in the press release:

Avedro is an ideal fit for Glaukos' core strengths in creating and disrupting ophthalmic markets with novel therapies that address important unmet clinical needs of practitioners and patients. ... Our combined organizations can possess the essential expertise, scale and reach to maximize these opportunities, drive further commercialization of Avedro's bio-activated pharmaceuticals and establish another synergistic and durable Glaukos franchise to fuel potential near- and long-term growth and shareholder value.

Glaukos stock sold off on the news because the company's shareholders will be diluted by about 15% once the deal closes. Avedro's shareholders loved the announcement because they're receiving a 60% premium for their shares based on the volume-weighted average price of the stock over the last 60 trading days.

Avedro, based in the Boston area, is on track to have a short life as a public company. It just went public in February. 

Now what

Glaukos expects the Avedro acquisition to accelerate its revenue growth beginning in 2020 and to be accretive to its operating results and cash flows by 2021.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.