Please Cover One Eye and Read the Top Four Lines - January 12, 2009

E FP TOZ LPED PECFD….do you know what these represent? These are the starting letters from the basic eye chart exam. This is significant today in that Abbott Laboratories (ABT) confirmed a report early this morning that the company has made plans to acquire Advanced Medical Optics Inc. (EYE) for $1.36B.

Abbott, which is a global, broad-based health care company devoted to discovering new medicines, new technologies and new ways to manage health. The company’s products consist of a broad range of healthcare implementations, from nutritional products and laboratory diagnostics through medical devices and pharmaceutical therapies.

On the other side of the coin, Advanced Medical Optics is a leader in the development, manufacturing and marketing of medical devices for the eye and contact lens care products. Focusing on the development of a broad suite of innovative technologies and devices to address a wide range of eye disorders, their products include the ophthalmic surgical line of foldable intraocular lenses, phacoemulsification systems, viscoelastics and related products used in cataract surgery and microkeratomes used in LASIK procedures for refractive error correction.

As part of the deal, Abbott offered Advanced Medical Optics $22 per share, nearly 150% over last Friday’s closing price of $8.85 per share. Including the debt that Abbott will accumulate from Advanced Medical, the deal is valued at over $2.8B.

"With Advanced Medical Optics, Abbott is enhancing and strengthening its diverse mix of medical device businesses and gaining a leadership position in another large and growing segment," Abbott Chairman and CEO Miles D. White said in a company statement. "Additionally, Abbott's significant global presence will help drive growth opportunities for this business, especially in international markets, where favorable demographics are driving demand for advanced eye care procedures and products."

Advanced Medical is most recently recognizable from their 2007 recall of their contact lens solution, Complete MoisturePlus, which was linked to potentially blinding eye infections. Another news-making event that put EYE in the spotlight was the $4.23B hostile bid of Bausch & Lomb made that same year. However, Advanced Medical retracted their bid as there were too many hoops to jump through that were unrealistic to the company at that time.

As part of the deal, Abbott officials predict that the acquisition will generate a long-term sustainable growth rate of more than $1B in annual sales once Advanced Medical is incorporated into Abbott’s business model.

In addition, Abbott, before the company’s announcement of the deal early this morning, had provided 2009 earnings forecasts that have the company posting net income of $3.65 to $3.70 per share, which equates to a growth rate of more than 10% over last year’s yearly per share earnings.

With Abbott yet to announce yearly results for 2008, ABT reaffirmed their outlook of producing earnings between $3.31 and $3.33 per share. Although the company does not expect the deal to have any impact on 2009 earnings, look for an impact of the acquisition to take hold in 2010, along with transaction-related costs as well.

In morning trading, shares of ABT were down less than 1%, trading at $50.80 per share, while shares of EYE skyrocketed from the opening bell, surging more than 144% to trade at $21.62 per share.

For more information on the stock and options markets check out the wealth of information at BetterTrades.