Why Tesaro Shares Are Booming

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Tesaro Inc. (NASDAQ: TSRO) shares absolutely exploded early on Monday after the company announced that it has entered a definitive agreement to be acquired by GlaxoSmithKline PLC (NYSE: GSK).

The transaction is valued at roughly $5.1 billion. The acquisition price of $75 per share in cash represents a 110% premium to Tesaro’s 30-day volume weighted average price of $35.67

GlaxoSmithKline expects the acquisition of Tesaro and associated R&D and commercial investments will impact adjusted EPS for the first two years by mid to high single-digit percentages, reducing thereafter with the acquisition expected to start to be accretive to EPS by 2022.

Guidance for full-year 2018 adjusted EPS growth remains unchanged at 8% to 10%. GlaxoSmithKline continues to expect to deliver on its previously published Group Outlooks to 2020, but following the acquisition of Tesaro, the firm now expects EPS growth for the period 2016 to 2020 to be at the bottom end of the mid to high single-digit percentage compound annual growth rate range.

Emma Walmsley, CEO of GlaxoSmithKline, commented:

The acquisition of Tesaro will strengthen our pharmaceuticals business by accelerating the build of our oncology pipeline and commercial footprint, along with providing access to new scientific capabilities. This combination will support our aim to deliver long-term sustainable growth and is consistent with our capital allocation priorities. We look forward to working with Tesaro’s talented team to bring valuable new medicines to patients.

Shares of Tesaro closed Friday at $46.38, with a consensus analyst price target of $54.33 and a 52-week trading range of $23.41 to $87.93. Following the announcement, the stock was up about 59% at $73.80 in early trading indications Monday.

GlaxoSmithKline closed Friday at $41.87 a share. The consensus price target is $44.30, and the 52-week range is $34.52 to $42.36. The stock was down 6% at $39.20 in Monday’s premarket.