Stryker Plans Takeover, Smith & Nephew Shares Surge

By Jof Enriquez,
Follow me on Twitter @jofenriq

Shares of Smith & Nephew (S&N), a maker of surgical devices and advanced wound management supplies, soared recently amidst speculation that Stryker Corp. will acquire the company in the next few weeks.

S&N shares recently rose 7.7 percent at the close of a recent trading day and 36 percent for the year, pushing the medical device company's worth to approximately 10.5 billion pounds ($16.3 billion), according to a Bloomberg report. The news outlet cited an anonymous source as saying that Stryker plans to offer a substantial premium to S&N's share price when it formally submits its bid for a takeover. One source said the premium could be up to 30 percent.

Bloomberg reported that Stryker does not want the deal to be a tax inversion because the recent crackdown by U.S. authorities has made such deals too risky and less beneficial. The sources reportedly said that Stryker is still finalizing its bid, and it may still decide against the offer.

Morgan Stanley analysts speculated that Stryker's earnings could benefit more if the deal with S&N is not structured as a tax inversion. Stryker could still yield tax benefits through other means, such as its recent decision to reduce tax rates and repatriate $2 billion in savings to fund future acquisitions, according to a Med Device Online (MDO) article.

Neither Stryker nor S&N have issued comments about the most recent speculation over a possible deal, according to the Bloomberg report.

According to a previous story on MDO, Stryker was reportedly preparing a bid for S&N as early as May, but the company denied its interest when formally asked by Britain's Takeover Panel. That action prohibited Stryker from bidding for the following six months. When the moratorium expired on November 28, Bloomberg's sources again said that Stryker had renewed its interest in buying S&N, which was worth about $16 billion at that time.

Another of S&N's rumored buyers, Medtronic Inc., was also reportedly mulling a purchase of S&N earlier this year, but later decided to buy Irish company Covidien for $42.9 billion in a tax inversion transaction.

Despite being a target of takeover by bigger companies, S&N has been active in making acquisitions of its own. It bought ArthroCare Corporation in June for an approximately $1.5 billion sum to expand its sports medicine portfolio.

The orthopedics segment – and the medtech sector in general – has seen increased consolidation in recent months, with the largest transaction being the $13.4 billion purchase of Biomet Inc. by Zimmer Holdings Inc. to create the second biggest company in the orthopedics and dental products space behind market leader Johnson & Johnson.