Why Shares of Cubist Pharmaceuticals Inc Skyrocketed

By Markets Fool.com

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What's happening?
Shares of Cubist Pharmaceuticals have leapt more than 35% higher after the opening bell on Monday after news broke that pharmaceutical giant Merck 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.

The article Why Shares of Cubist Pharmaceuticals Inc Skyrocketed originally appeared on Fool.com.

Alex Planes has no position in any stocks mentioned. The Motley Fool recommends Cubist Pharmaceuticals. The Motley Fool owns shares of Cubist Pharmaceuticals. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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