Whiplashed investors stay skittish about St. Jude

Published 26/08/2016 in Cybersecurity, Technology

Whiplashed investors stay skittish about St. Jude

One day after a short seller claimed that St. Jude Medical Inc’s (STJ.N) heart implants are vulnerable to deadly cyber attacks, investors appear most concerned about whether the accusation will derail St. Jude’s $24 billion planned deal for Abbott Labs (ABT.N) to buy it.St. Jude’s stock at one point fell around 3 percent on Friday, though it ended the day slightly up, following a drop of around 5 percent on Thursday after Muddy Waters Capital leveled the accusation against St. Jude. The stock continues to trade well below its price on Wednesday of around $82 per share.

By Carl O’Donnell and Lauren Hirsch

) heart implants are vulnerable to deadly cyber attacks, investors appear most concerned about whether the accusation will derail St. Jude’s $24 billion planned deal for Abbott Labs (ABT.N) to buy it.St. Jude’s stock at one point fell around 3 percent on Friday, though it ended the day slightly up, following a drop of around 5 percent on Thursday after Muddy Waters Capital leveled the accusation against St. Jude. The stock continues to trade well below its price on Wednesday of around $82 per share.

St. Jude called the allegations “false and misleading.”

St. Jude in April agreed to sell itself to Abbott, and the deal was widely considered a slam dunk before the cyber security concerns were raised.

“It’s hard to imagine that this could scuttle the deal,” said one investor, who asked to remain anonymous because he wasn’t authorized to speak with the press. “But there are a few paths that could lead to problems.”

Abbott could decide to back out of the St. Jude deal or push for a lower valuation “if they were to conclude remediation steps must be taken with St. Jude’s technology,” Jason Mills, an analyst at Canaccord Genuity, said in a note.

One concern being voiced is that the U.S. Food and Drug Administration could demand a full-scale product recall, which in turn could trigger a “material adverse change” clause in St. Jude’s merger agreement.That would give Abbott the ability to walk away from the deal, according to investors and analysts interviewed by Reuters.

If the deal were called off due to an adverse event, St. Jude would probably fall below the approximately $60 per share that it was trading at before the Abbott deal was announced, investors said. A forced recall, though, is unlikely, according to Mills. The FDA issued its first guidance on managing cybersecurity in medical devices only eight months ago, and is still seen primarily as playing an advisory role in the area.

The more likely solution to any concerns about cyber security would be a software update, which is relatively inexpensive, said another investor, who asked not to be named because he wasn’t authorized to speak with the press.

(Reporting by Carl O’Donnell in New York- Additional reporting by Mike Erman in New York- Editing by Eric Effron and James Dalgleish)

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