Abbott shares steady after diagnostics sale called off

Abbott Laboratories shares were holding up well today in the wake of the North Chicago company's unexpected Wednesday-evening disclosure of the collapse of its earlier-announced $8.1 billion deal to sell most of its diagnostics operations to General Electric Co.

Abbott shares weakened had weakened in after-hours trading yesterday, in the immediate aftermath of Abbott's news that the deal which the two companies had so vigorously touted in January now won't take place because they were "unable to agree on final terms and conditions."

But in early-afternoon New York Stock Exchange trading today, Abbott's stock is actually up 2 cents, at $53.23. GE shares are likewise stable, trading up 9 cents at $38.28.

Neither side in the aborted deal has offered a concrete reason for why the accord fell through. But analysts were guessing that the hefty price tag to which GE had originally agreed probably played a role.

"We thought Abbott was getting a great deal at the announced price," Mornignstar analyst Heather Brilliant told investors in a note, "and now it looks like that price was too good to be true."

Although it is "difficult to directly attribute cause," echoed UBS analyst David Bleustein, who follows GE, "we note that GE's stock declined roughly $4 per share in the two months following the announcement of the intent to acquire the Abbott businesses and the reporting of weaker than expected results in GE's healthcare business in its fourth quarter."

Bleustein held his earnings estimates for GE steady, removing the expected benefits the purchase from Abbott had been expected to yield, but also building in the expectation that GE -- freed from having to shell out $8.1 billion in cash to Abbott -- will now spend an additional $6 billion buying back its shares through 2008.

Although Abbott has said it now intends to retain the operations it agreed to sell to GE, a number of observers expect those assets will draw other bidders.

"We think Abbott will continue to look for a buyer for this business, given (the company's) clear interest in unloading the unit," said Morningstar's Brilliant.

"However," she added, "we'd expect other buyers would offer less than GE did given that the firms were unable to agree on final terms."

Bank of America analyst Glenn Novarro suggested that GE had been looking for a price cut, but that Abbott had balked.

"In talking to the company, it is our sense that GE asked for additional terms that would have decreased the value of the transaction and these terms weren't acceptable to management" of Abbott, the analyst said in a report cited by Bloomberg News.

"It's a good thing that (GE) is not buying this asset," said T. Rowe Price analyst Peter Bates. The Abbott operation GE had agreed to purchase "was a business in decline," he contended in a report cited by Bloomberg, "and GE should be buying back their stock" instead.

source:chicagotribune.com