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Shares of Cubist Pharmaceuticals (UNKNOWN:CBST.DL) have leapt more than 35% higher after the opening bell on Monday after news broke that pharmaceutical giant Merck (NYSE:MRK) would acquire its smaller peer for $102 per share.
Why it's happening
The deal, which is valued at $8.4 billion with Cubist's debt included, was undertaken to strengthen Merck's "leadership position in [the] hospital acute care market," according to documents Merck released to announce its buyout. Cubist's portfolio currently contains three commercial treatments and one late-stage pipeline product. Two of Cubist's three commercial products, and its pipeline product, focus on treating difficult-to-fight infections, which has gained it the reputation of a "superbug" specialist in a pharmaceutical environment that has overlooked such infections until fairly recently.
Merck expects the deal to add more than $1 billion in annual revenue, with no impact on EPS, next year. Cubist's drugs should become "significantly accretive to [Merck's] EPS" from 2016 onward. Cubist's investors will not get to share in these gains, since this is an all-cash deal that will be financed primarily by the issuance of about $9.5 billion in new debt.