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.
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