Why St. Jude Medical, Inc. Acquired a Higher Price Today

By Markets Fool.com

What: St. Jude Medical is up about 28% at 11:30 a.m. EDT on news that the medical-device maker agreed to be acquired by Abbott .

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So what: The deal calls for Abbott to pay St. Jude Medical's shareholders $46.75 in cash and 0.8708 shares of Abbott for each share of St. Jude Medical. That values St. Jude Medical's shares at a hair under $85 based on yesterday's closing price, and under $83 per share based on the current price of Abbott, which has fallen 2.3% as of 11:30 a.m. EDT.

From a sales standpoint, joining forces makes a lot of sense. According to Abbott, the combined company "will hold the number 1 or 2 positions across large and high-growth cardiovascular device markets and will compete in nearly every area of the market."

And of course, there's the ability to save money by reducing repetitive expenses by $500 million per year by 2020. Abbott estimates that adding St. Jude Medical will increase earnings by $0.21 per share in 2017 and $0.29 per share in 2018.

Now what: In an all-cash deal, investors can just wait to sell until the risk of the deal falling through doesn't justify the difference between the current share price and the acquisition price.

In a deal that involves getting shares from the acquiring company, the decision is a little more complicated because the daily changing stock price of the acquiring company will affect the acquired company until the acquisition goes through.

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Investors who have confidence in Abbott can continue to hold, perhaps even taking shares of the combined company in the exchange. Those who don't have confidence shouldn't look a gift horse in the mouth and should feel free to sell their shares now.

The article Why St. Jude Medical, Inc. Acquired a Higher Price Today originally appeared on Fool.com.

Brian Orelli and The Motley Fool have no position in any of the stocks mentioned. 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.