The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Robert Cyran

NEW YORK, Nov 20 (Reuters Breakingviews) - Chief executives thinking long-term is excellent in theory, but difficult in practice, as Abbott Laboratories ABT.N just made clear. The medical device and diagnostics giant agreed to buy Exact Sciences EXAS.O and its colorectal cancer testing empire for $21 billion, in a deal that will generate limited savings and a paltry return on investment in the shorter-term. The promise is of growth for many years to come.

True to form, shareholders considered the more immediate implications. Abbott shares fell 3% on Wednesday after Bloomberg reported that the $220 billion company was in talks with Exact Sciences and again on Thursday, in a rising market, when the acquisition was formally unveiled.

Some skepticism is warranted. Exact Sciences will generate about $420 million of operating profit in 2028, according to estimates gathered by LSEG. Add the $100 million of expected cost savings from the combination, apply the statutory 21% tax rate and there's $400 million of profit. On a $23 billion deal, including debt, the implied return is just 2%, far short of the target's 8.5% weighted average cost of capital as estimated by Morningstar analysts.

Abbott boss Robert Ford at least can stack up the decision on its strategic merits. For one thing, pandemic-related testing that juiced the company's share price would benefit from something fresh to fill the void.

There's also a chance to justify the price tag, in time. Patients can screen for colon cancer at home using Exact Sciences products. Abbott’s large international presence and the difficulty of getting a colonoscopy in many countries should help improve growth. The bigger appeal, however, is simply that blood-cancer testing is a big and largely untapped market. Project that part of the business beyond 2028, throw in some operating leverage, and Abbott's return could easily be much higher.

The trouble is that financial modeling beyond a few years is often an exercise in wishful thinking. It's all too easy to flatter figures with minor tweaks to forecasts and discount rates. Trying to gauge a medical test's popularity, the competition, insurance coverage rates and myriad other contributing factors to the bottom line in, say, 2031 sounds like little more than a guessing game. The proximate diagnosis for Abbott is concerning.

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CONTEXT NEWS

Abbott Laboratories said on November 20 it had agreed to buy Exact Sciences for $21 billion, or $105 per share, to make a push into cancer screening.

Exact Sciences produces Cologuard, which tests for colon cancer, and Cancerguard, a blood test for multiple cancers.

The agreed price represents a 51% premium to where Exact Sciences shares closed on November 18, the day before Bloomberg reported that the two companies were in talks. Abbott also said the deal financing contemplates absorbing Exact Sciences' $1.8 billion of net debt.

Morgan Stanley is advising Abbott while Centerview Partners and XMS Capital Partners are advising Exact Sciences.

(Editing by Jeffrey Goldfarb; Production by Maya Nandhini)

((For previous columns by the author, Reuters customers can click on CYRAN/robert.cyran@thomsonreuters.com; Reuters Messaging: robert.cyran.thomsonreuters.com@reuters.net))