Abbott to Buy CFR Pharma - Analyst Blog

In a move to broaden its presence in the Latin American market, Abbott Labs ABT announced that it has entered into a definitive agreement to acquire Latin American pharmaceutical company, CFR Pharmaceuticals.

As per the terms of the agreement, Abbott Labs will acquire the holding company that owns a 73% stake in CFR Pharmaceuticals. Abbott Labs will also conduct a public cash tender offer for all of the outstanding shares of CFR Pharmaceuticals following necessary regulatory approvals.

The total purchase price comes to approximately $2.9 billion assuming all publicly-held shares are tendered to the offer along with the assumption of net debt of approximately $430 million.

The transaction is expected to close by the third quarter of 2014. The acquisition is expected to add approximately $900 million to Abbott Labs' top line in the first full year post acquisition (2015).

Thereafter, Abbott Labs expects double-digit sales growth over the next several years.

The transaction is also expected to be accretive to bottom line in 2015.

Headquartered in Chile, CFR Pharmaceuticals has a comprehensive product portfolio with operations in 15 Latin American markets. The acquisition is expected to be complementary to Abbott Labs' current pharmaceutical therapeutic areas of focus including women's health, central nervous system, cardiovascular and respiratory diseases.

Our Take

Abbott Labs currently carries a Zacks Rank #3 (Hold).  Emerging markets are key focus areas for Abbott Labs. The CFR Pharmaceuticals acquisition will double Abbott Labs' branded generics pharmaceutical sales and presence in one of the fast growing markets. As per IMS forecasts, the Latin American pharmaceutical market will grow to $73 billion in 2014 and jump to $124 billion by 2018. Annual growth rates in these markets are expected to be two to three times that of developed markets over the coming years.

We remind investors that Abbott Labs became a diversified medical products company focusing on branded generic pharmaceutical, medical devices, diagnostic and nutritional businesses following the separation of its research-based pharmaceuticals business into a new company, AbbVie Inc. ABBV, in Jan 2013.

The business environment was challenging in 2013 due to austerity measures undertaken by developed markets.

Hence, Abbott Labs' efforts to broaden its presence in the emerging markets will help the company to combat the challenging business environment elsewhere in the world and maintain top-line growth.

Some better-ranked stocks in the broader healthcare sector include Allergan AGN and Shire SHPG. While Allergan is a rank #1 (Strong Buy), Shire is a Zacks Rank #2 (Buy).