St. Jude Medical acquired by Abbott Laboratories: fairness opinion by Guggenheim Securities
Deal terms
$46.75 in cash plus 0.8708 of an Abbott common share per St. Jude Medical share; implied value of $85.00 per share based on Abbott's five-day VWAP of approximately $43.93 as of April 26, 2016. Cash in lieu of fractional shares. Mix approximately 55% cash / 45% stock, subject to adjustment if dissenters' rights are exercised on ~8.5% or more of shares.
Implied value per share by method vs. $46.75 offer
Ranges as disclosed in the banker’s summary of analyses; the red line marks the per-share consideration.
Opinion of Guggenheim Securities to the target board
Discounted cash flow assumptions
Two-stage terminal/continuing value methodology applied to steady-state terminal year unlevered free cash flow (after deduction of stock-based compensation). Value-based has/gets showed more precise range of $74.19 to $113.93.
Selected public companies (9)
Abbott Laboratories · Becton, Dickinson and Company · Boston Scientific Corporation · C.R. Bard, Inc. · Johnson & Johnson · Medtronic Public Limited Company · Smith & Nephew plc · Stryker Corporation · Zimmer Biomet Holdings, Inc.
| Multiple | Peer low | Peer median | Peer high | Range applied | Implied per share |
|---|---|---|---|---|---|
| 2016E Cash P/E | 14.6x | 18.6x | 20.6x | 17.0x–18.5x | $70.00–$76.50 |
| 2017E Cash P/E | 13.3x | 16.5x | 18.5x | 15.5x–16.5x | $71.50–$76.00 |
Selected precedent transactions (12)
| Date | Target | Acquirer | Multiple |
|---|---|---|---|
| 2014-10-05 | CareFusion Corporation | Becton, Dickinson and Company | 11.9x Transaction Value / NTM EBITDA |
| 2014-10-05 | CareFusion Corporation | Becton, Dickinson and Company | 21.1x NTM Cash P/E |
| 2014-06-15 | Covidien plc | Medtronic, Inc. | 14.9x Transaction Value / NTM EBITDA |
| 2014-06-15 | Covidien plc | Medtronic, Inc. | 21.6x NTM Cash P/E |
| 2014-04-24 | Biomet, Inc. | Zimmer Holdings, Inc. | 11.2x Transaction Value / NTM EBITDA |
| 2014-04-24 | Biomet, Inc. | Zimmer Holdings, Inc. | 17.0x NTM Cash P/E |
| 2013-05-27 | Bausch + Lomb Holdings Incorporated | Valeant Pharmaceuticals International, Inc. | 11.8x Transaction Value / NTM EBITDA |
| 2013-05-27 | Bausch + Lomb Holdings Incorporated | Valeant Pharmaceuticals International, Inc. | 17.1x NTM Cash P/E |
| 2011-07-13 | Kinetic Concepts, Inc. | Apax Partners | 8.8x Transaction Value / NTM EBITDA |
| 2011-07-13 | Kinetic Concepts, Inc. | Apax Partners | 13.0x NTM Cash P/E |
| 2011-04-27 | Synthes, Inc. | Johnson & Johnson | 11.1x Transaction Value / NTM EBITDA |
| 2011-04-27 | Synthes, Inc. | Johnson & Johnson | 20.5x NTM Cash P/E |
| Multiple | Low | Median | High | Range applied | Implied per share |
|---|---|---|---|---|---|
| Transaction EV / NTM Adjusted EBITDA | 8.8x | 11.5x | 14.9x | 12.0x–14.0x | $55.50–$67.50 |
| NTM Cash P/E | 13.0x | 18.8x | 21.6x | 18.0x–21.0x | $74.50–$86.50 |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| Illustrative Discounted Cash Flow Analysis - Wall Street Equity Research Estimates | Stand-alone DCF of St. Jude Medical using Wall Street equity research estimates extrapolated through the fiscal year ending January 2, 2021, using the same methodology as the management-case DCF. | $57.50–$89.00 |
| 52-Week Trading Range | St. Jude Medical stock price range during the 52-week period ended April 26, 2016 (for reference). | $49.00–$81.00 |
| Wall Street Equity Research Analyst Price Targets | One-year forward analyst price targets for SJM of $60.00-$71.00 per share, discounted to present value at an illustrative 9.2% cost of equity. | $55.00–$65.00 |
| Premiums Paid Analysis | 18 selected healthcare transactions announced since January 1, 2004 with transaction values over $10 billion; one-day premiums ranged approximately 6% to 42% (mean ~27%, median ~27%). Applying the 25th to 75th percentile range of ~23% to 37% to SJM's closing price one trading day prior to April 26, 2016. The merger consideration implied a one-day premium of ~41%. | $74.00–$82.50 |
| Illustrative Theoretical Future Stock Price | Reviewed theoretical future per share values (Jan 1, 2017 through Jan 1, 2020) for pro forma Abbott and stand-alone SJM, discounted to present value at 9.2% cost of equity. Pro forma Abbott: ~$91.24-$99.67 (20.2x 2016E Cash P/E, SJM Forecast), ~$90.81-$97.71 (20.2x, research estimates), ~$88.28-$94.93 (19.0x two-year average NTM Cash P/E, research estimates). Stand-alone SJM at 16.0x two-year average NTM Cash P/E: ~$69.54-$77.37 (SJM Forecast) and ~$66.34-$67.11 (research estimates). | $66.34–$99.67 |
| Illustrative Value-Based Has/Gets | Compared implied intrinsic value of stand-alone SJM to the pro forma combined company. Using SJM Forecast/Abbott Analyst Forecast: SJM stand-alone ~$74.19-$113.93; pro forma with financing ~$80.47-$104.33; pro forma with Estimated Incremental Financial Impacts ~$82.72-$107.89. Using Wall Street estimates for SJM: stand-alone ~$57.50-$88.95; pro forma with financing ~$78.09-$100.74; pro forma with incremental impacts ~$80.35-$104.30. | $57.50–$113.93 |
| Illustrative Abbott Cash EPS Accretion/(Dilution) | Reviewed pro forma impact of the mergers on Abbott's projected Cash EPS for fiscal years 2017-2020 using the Abbott Analyst Forecast and Wall Street estimates for SJM, taking into account financing and the Estimated Incremental Financial Impacts; indicated the mergers would be accretive to Abbott's projected Cash EPS in each year. | — |
| Recap of Implied Merger Statistics | At the $85.00 implied per share merger consideration: 41% premium to the April 26, 2016 closing price of $60.18; 48% premium to the 30-day VWAP of $57.30; 5% premium to the 52-week (all-time) high of 07/21/15. Implied EV/Adjusted EBITDA of 16.9x 2016E and 15.5x 2017E; Cash P/E of 20.6x 2016E and 18.4x 2017E (SJM Forecast), 20.8x and 19.1x (Wall Street estimates). | — |
Cash transaction fee based on a percentage of aggregate consideration, estimated at approximately $59 million, payable upon consummation of the first merger. A $2 million cash milestone fee became payable upon execution of the merger agreement and is credited against the transaction fee. Expense reimbursement and indemnification also provided.
Management projections
| Projection year | Year 1 | Year 2 | Year 3 | Year 4 | CAGR |
|---|---|---|---|---|---|
| Revenue | $6.7B | $7.4B | $8.0B | $8.9B | 9.6% |
| Revenue growth | 9.4% | 9.3% | 9.4% | 10.2% | |
| EBITDA | $2.0B | $2.2B | $2.4B | $2.6B | 9.5% |
| EBITDA growth | 4.3% | 9.0% | 9.6% | 9.8% | |
| EBITDA margin | 29% | 29% | 29% | 29% | |
| Implied EV / EBITDA | 14.6x | 13.4x | 12.2x | 11.1x |
Year-1 growth is against LTM at announcement ($6.2B revenue, $1.9B EBITDA); later years are year over year.
St. Jude Medical management prepared the "St. Jude Medical Forecast" covering fiscal years 2016E-2020E: revenue of $6,151M in 2016E growing to $8,869M in 2020E; EBITDA of $1,898M to $2,695M; Adjusted EBITDA (including stock-based compensation) of $1,823M to $2,595M; and Cash EPS of $4.13 to $6.46. Abbott provided no internal projections, so Guggenheim used a Wall Street analyst-derived "Abbott Analyst Forecast" (with adjustments/extrapolations through 2020, including Abbott's pending Alere acquisition). Abbott management also provided "Estimated Incremental Financial Impacts" (revenue enhancements, cost savings, financing impacts), reviewed by SJM management. Guggenheim additionally ran a DCF on SJM using Wall Street equity research estimates extrapolated to FY ending January 2, 2021.
Process notes
Other Medical Devices and Supplies fairness opinions
- Vascular Solutions / Teleflex 2016 · 25.7x EV/EBITDA
- EndoChoice Holdings / Boston Scientific 2016
- HeartWare International / Medtronic 2016
- Hansen Medical / Auris Surgical Robotics 2016
- LDR Holding / Zimmer Biomet Holdings 2016
- Symmetry Surgical / Roundtable Healthcare Partners 2016 · 12.6x EV/EBITDA
All Medical Devices and Supplies opinions → · Guggenheim Securities opinions