Abiomed (NASDAQ:ABMD) stock jumped over 50% in pre-market trading on Nov. 1 after Johnson & Johnson (NYSE:JNJ) agreed to buy it.
Abiomed is best known for its Impella heart pumps. It’s one of the fastest-growing areas of the medical industry. Second-quarter sales of $266 million were up 11% in constant currency, with a net income of $106 million, $2.34/share.
Johnson & Johnson will pay $380/share in cash, $16.6 billion in all, along with a “contingent value right” (CVR) worth up to $35/share if certain conditions are met. It had about $34 billion in cash and securities on its balance sheet on Oct. 2.
ABMD stock was due to open on Nov. 1 at $383/share.
Medical Transformation
Like its competitors, Johnson & Johnson has been jettisoning consumer products in favor of patented treatments and, in this case, medical devices. The medical device unit alone had sales of $27.06 billion in 2021. The entire company had sales of nearly $94 billion.
The consumer business will be spun out as Kenvue, with former CVS Health (NYSE:CVS) CEO Larry Merlo designated as a non-executive chair. That part of the business had sales of $14.6 billion last year.
Johnson & Johnson, which is based in New Jersey, is also building an “innovation campus” near San Francisco, where it will plug into Bay Area startups and seek other new acquisitions. Abiomed is based in Danvers, Massachusetts.
For Abiomed stockholders, the deal represents the end of a volatile period. The stock traded as high as $382/share in 2021 but was at $245 as recently as September. The price it’s taking is slightly above that all-time high, and the CVR could bring shareholders even more money down the road.
JNJ has not been nearly so volatile. Shares are up just 24% over the last five years, but there has been a steady stream of dividends, growing from 84 cents/share per quarter to $1.13. JNJ shares barely budged in the pre-market after the deal was announced.
ABMD Stock: What Happens Now?
The all-cash deal and CVR mean it’s unlikely another bidder will emerge for Abiomed. But ABMD shareholders should be fully satisfied.
On the date of publication, Dana Blankenhorn held no positions in any companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
