Why NxStage Medical, Inc. Is Skyrocketing Today

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What happened

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Shares of NxStage Medical (NASDAQ: NXTM), a medical device maker focused on end-stage renal disease and acute kidney failure, jumped 28% as of 11:40 a.m. EDT on Monday.

So what

NxStage Medical reported its second-quarter earnings results earlier today. The company's top line grew 5% to $96.2 million while its net loss came in at $2.1 million, or $0.03 per share. These numbers fell a bit short of what market watchers had expected. However, the earnings report is being overshadowed by the news that it has accepted a buyout offer from Fresenius Medical Care (NYSE: FMS).

Fresenius, which is the world's largest provider of dialysis products and services, agreed to acquire NxStage Medical in an all-cash deal worth $2 billion. That translated into a share price of $30 and represents a 30% premium to NxStage Medical's closing price on Friday. Fresenius plans on financing the deal with a combination of cash on hand and through debt.

Fresenius' management team touted that this acquisition would immediately establish the company as the global leader in home dialysis and provide it with a substantial presence in the U.S. critical care space. Furthermore, the company expects that the deal will be accretive to its net income within three years from closing. 

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Rice Powell, Fresenius Medical Care's CEO, offered investors the following rationale on why this deal makes sense for his businesses:

The acquisition supports our 2020 strategic initiative of driving growth in the core business with innovation, better clinical outcomes through Care Coordination and improving the patient experience. Combining our two companies would strengthen and diversify our business in the U.S. and help meet the evolving needs of our patients.

Jeffrey Burbank, NxStage's founder and CEO, was also bullish on the transaction and provided his shareholders with the following commentary:

We believe that the announced transaction with Fresenius Medical Care creates significant value for our shareholders and significant opportunities for our patients, customers, partners and employees. I'm excited about what this means for the future of our products and therapy, and for the patients who will receive greater access to them.

NxStage's board of directors has already unanimously approved the deal. The closing is expected to occur in 2018.

Now what

Fresenius cranked out more than $1.2 billion in net income last year and currently boasts a market cap in excess of $26 billion. Those figures hint that the company should have no problems getting its hands on the $2 billion necessary to finance for this transaction. Since the deal already received the thumbs-up from NxStage's board, it looks to have high odds of closing without much trouble.

NxStage Medical's stock was having a rough 2017 prior to this announcement, declining by double digits since January after management cut its home revenue growth target for the year in its first-quarter results. After today's jump, it is now up by more than 13% since the start of the year.

In total, there are reasons for shareholders on both sides of this deal to applaud this transaction.

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Brian Feroldi has no position in any stocks mentioned. The Motley Fool owns shares of and recommends NxStage Medical. The Motley Fool has a disclosure policy.