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Martin Moylan and Reuters

Abbott to buy St. Jude Medical for $25 billion

St. Jude Medical
The entrance to the corporate headquarters of St. Jude Medical is seen Jan. 25, 2006.
AP 2006

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Updated: 4:45 p.m. | Posted: 6:18 a.m.

Abbott Laboratories said it has agreed to buy Little Canada-based medical device maker St. Jude Medical for $25 billion to add heft to its heart and neurological devices business.

The deal includes Abbott assuming or refinancing $5.7 billion of debt on St. Jude's books.

The combination is anticipated to result in annual pretax synergies of $500 million by 2020, including both sales and operational benefits.

The offer represents a 37 percent premium to St. Jude's Wednesday closing. St. Jude Medical's stock price rose 26 percent Thursday on news of the deal.

Abbott, which is based in Illinois, said St. Jude's devices for heart failure, blockages and abnormal heart rhythm complement its range of heart products.

This is the latest marriage of medical companies trying to bulk up and grab more sales. That was also a big reason for the merger of Twin Cities-based Medtronic and Covidien announced about two years ago.

"St. Jude Medical, compared to the companies it competes with such as Medtronic and Boston Scientific, did not have as broad of a product portfolio," said Joanne Wuensch, a med tech analyst with the investment firm BMO Capital Markets. "Now, as part of Abbottt, they will go in with a broader array of products to talk about."

The combined companies will have more leverage in negotiating sales prices with hospitals, which increasingly prefer to deal with a limited number of vendors, she added.

Wuensch points out that what may be good for Abbott may not be so good for workers. The two companies expect to save $500 million a year in what the companies called "synergies."

That usually translates to not just closing of facilities but also layoffs, she said.

It's often the acquired company's employees that bear the brunt of the cost cutting. St. Jude has about 3,000 employees in the Twin Cities.

The company won't say what impact the deal may have on jobs here. But St. Jude issued a statement recognizing the importance of Minnesota as a center of excellence for medical device innovation and talent.

Debbie Wang, an analyst with the investment research firm Morningstar, expects Abbott will leave St. Jude's headquarters in place. She said Abbott would be wise not to mess with the creative culture there.

"St. Jude does a lot of R&D in the Twin Cities area and I think that they may want to leave that alone," Wang said, "especially because St. Jude has a culture that supports this kind of risk taking that you need in order to come up with meaningful innovation."

MPR News editor Bill Catlin contributed to this report.