What: Shares of the medical diagnostic company Alere (NYSE: ALR) jumped 45% today on a $5.8 billion buyout deal with Abbott Laboratories (NYSE:ABT). Abbott is reportedly paying $56 per share for Alere in an all-cash deal, representing a 50% premium compared to where Alere's shares were trading following Friday's close. Per the terms of the deal, Abbott will also assume $2.6 billion of Alere's outstanding debt.
So what: This buyout will significantly bolster Abbott's point-of-care testing portfolio for infectious diseases, and immediately add to the company's earnings upon closing. Perhaps the bigger issue, though, is that Abbott's willingness to execute a deal at a 50% premium shows that the appetite for M&A among healthcare companies hasn't wavered, despite the sector's massive sell-off last month.
Now what: According to S&P Capital IQ, Alere's product portfolio is expected to generate around $2.5 billion in sales in 2016. So, Abbott seems to be getting a fairly reasonable price for Alere's diagnostic assets, especially since the deal will grow the company's bottom line right away. That's why investors may want to take a deeper look at Abbott today.