Amsterdam-based Royal Philips Electronics will buy Respironics for $5.2 billion or about $66 per share, Philips announced Friday in a statement.

Respironics, Inc. (NASDAQ: RESP) shares surged more than 20% on the news, gaining $12.23 to $65.34. Koninklijke Philips Electronics NV (ADR) (NYSE: PHG) shares declined 80 cents to $43.35 in Friday afternoon trading.

Philips said the acquisition significantly strengthens Philips Healthcare, will provide a strategic platform for further growth, and also leverages the acquisitions of Lifeline and Raytel.

Pennsylvania-based Respironics manufactures masks and ventilators for use in patients homes for the treatment of breathing disorders.

Respironics (NASDAQ: RESP) will be acquired by Philips (NYSE: PHG) for $66 in cash per cash. RESP, a provider of treatments for Obstructive Sleep Apnea, closed at $53.61. RESP over all option implied volatility of 28 is near its 26-week average according to Track Data, suggesting non-directional risk.

Genentech (NYSE: DNA) closed at $67.96. DNA will report EPS on January 14th. DNA January option implied volatility of 30 is above its 26-week average of 26 according to Track Data, suggesting larger price risk.

Options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com

People who have sleep apnea stop breathing for a few seconds during the sleep cycle. That jolts the body awake to start breathing again and normally happens several times a night. Sufferers are chronically tired and some face life-threatening conditions. An estimated 12 million Americans are affected. There is a firm in Murrysville, Pennsylvania that makes medical equipment designed to help patients deal with this condition.

Respironics Inc. (NASDAQ: RESP) specializes in making devices for treating disorders characterized by the cessation of breathing during sleep. Products include continuous positive airway pressure systems, invasive and noninvasive ventilators, oxygen concentrators and peak-flow meters. The company also offers drug-delivery systems for patients with asthma, monitoring systems for sudden infant death syndrome, and treatment tools for infant jaundice. Customers are primarily home medical equipment providers and hospitals.

The firm pleased investors last week, when it reported fiscal Q4 EPS of fifty cents and revenues of $332.4 million. Analysts had expected 48 cents and $322.1 million. Management also guided FY08 EPS to $1.90-$1.98 ($1.91 consensus) and FY08 revenues to $1.345-$1.375 billion ($1.35 billion consensus). The share price popped on the news and has since been consolidating the gain in a bullish "flag" pattern. Prices frequently exit flags moving in the same direction they were traveling when they entered them. In this case, that would be to the upside.

Brokers recommend the stock with five "strong buys," two "buys" and one "hold." The RESP Price to Book ratio (3.95), Sales Growth rate (18.40%), EPS Growth rate (24.90%), Return on Assets (10.90%) and Return on Investment (13.63%) compare favorably with industry, sector and S&P 500 averages. Institutions hold about 79% of the outstanding shares. The stock is one of those used to calculate the S&P 600 SmallCap Index. Over the past 52 weeks, it has traded between $33.04 and $47.64. A stop-loss of $40.25 looks good here.

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.