Dow Jones stalwart Merck and Surmodics announced big takeover deals Wednesday, but Merck stock remained at a standstill as Surmodics stock rocketed to a two-year high.
Surmodics, which makes components for medical devices and tests, agreed to a $627 million takeover deal from private equity firm GPCR. Meanwhile, Merck is buying privately held EyeBiotech for $1.3 billion upfront and up to $1.7 billion in future milestone payments.
Surmodics stock soared 19.9% to 42.10, within striking distance of the $43-per-share takeover price. Merck stock, on the other hand, dipped a fraction to 125.90.
Deal Values Surmodics Stock Fairly, Analyst Says
Surmodics makes coatings for intravascular medical devices and chemical/biological components for in vitro diagnostic tests. The company also makes vascular medical devices.
Its recent sales have grown at a rapid clip, up almost 33% in 2023 to $132.6 million. But analysts call for a 7% decline this year to $122.9 million, according to FactSet. The lion's share of its sales come from the medical devices unit, with in vitro diagnostics accounting for about 20% of sales last year.
Needham analyst Mike Matson says the deal makes sense for Surmodics. He downgraded Surmodics stock to a hold rating on the pending acquisition, due to wrap in the second half of 2024.
"We believe that it makes more sense for a private equity firm to acquire Surmodics than a strategic since it generates more than 29% of its sales from coatings sold to other medical device companies, and believe that its customers would be unlikely to purchase coatings from a competitor," Matson said in a report clients.
The deal represents a 41.1% premium to Surmodics stock's 30-day volume-weighted average closing price through May 28, Surmodics said in a news release. Needham's Matson says the deal fairly values Surmodics stock. He previously had a 43 price target on shares.
Surmodics stock broke out on the news, jumping well above a buy point at 39.41 out of a lengthy consolidation, according to MarketSurge.
Merck Stock Eyes Flat Base Buy Point
Merck stock, on the other hand, was little moved on its takeover of EyeBio. With the deal, Merck lands Restoret, a late-stage experimental treatment for diabetic macular edema and neovascular age-related macular degeneration.
EyeBio expects to begin a pivotal test of Restoret in diabetic macular edema in the second half of the year. In this condition, blood vessels in the retina leak fluid into the macula. This causes swelling and blurry vision, according to the Mayo Clinic.
Merck will pay up to $1.7 billion in potential developmental, regulatory and commercial milestones, bringing the total potential value of the deal up to $3 billion.
Merck stock is currently forming a flat base with a buy point at 133.10. Shares have a middling IBD Digital Relative Strength Rating of 68, putting their 12-month performance in the leading 32% of all stocks. Surmodics stock has a higher RS Rating of 84.
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