Cyberonics Rebuffs Bid From Medtronic,
But Device Maker Is Effectively in Play
By THOMAS M. BURTON and STEVEN LIPIN
Staff Reporters of THE WALL STREET JOURNAL
Cyberonics Inc. rebuffed a $480 million takeover bid from medical-device giant Medtronic Inc. and professed its intention to stay independent.
Cyberonics, a Houston-based maker of medical devices used to treat epilepsy, confirmed that it has been in talks with Minneapolis-based Medtronic for several months, and that the negotiations have broken down.
Robert P. Cummins, Cyberonics's president and chief executive officer, said in an interview: "Our board has been actively involved in the discussions and unanimously elected to remain independent."
Stock Soars $9.88
But that will be difficult, analysts say. With disclosure of the $26-a-share bid from Medtronic, Cyberonics is effectively in play. The company's shares skyrocketed to around the bid price, finishing at $25.94, up $9.88, in 4 p.m. Nasdaq Stock Market trading Monday.
Moreover, Cyberonics appears to have at least one major chink in its takeover armor. The full board is up for election at the annual meeting, which is typically held in January. It's unclear, however, whether Medtronic would proceed with a hostile takeover bid. Medtronic hasn't previously launched hostile takeover campaigns. But in making its bid for Cyberonics public, Medtronic is engaging in an aggressive form of brinksmanship, apparently hoping that big institutional investors will put pressure on Cyberonics to accept some form of Medtronic proposal.
In the interview, Mr. Cummins contended that the growth prospects of his company warrant remaining independent. For instance, he said early research on its electrical-stimulation device suggests that it may be useful in treating conditions other than epilepsy. These include depression, obesity and Alzheimer's disease.
Device for Depression
Cyberonics's device is implanted in the chest and imparts an electrical pulse to the vagus nerve in a patient's neck. In the case of depression, Mr. Cummins said the company has successfully tested the technology in 43 patients so far and plans to expand clinical trials to 210 depression patients. He said the company hopes to gain Food and Drug Administration approval for use of the device in depression by early 2003. Thus, Mr. Cummins suggested, its share price will do just fine without Medtronic.
However, Wall Street has generally known about the other medical uses for Cyberonics's technology for some time, and Cyberonics's share price has nevertheless drifted downward this year from a high of $28.25 early in the year. Senior executives of Cyberonics, including Mr. Cummins, sold thousands of their own shares between February and May, generally in a price range between $18.50 and about $28.
Mr. Cummins, for instance, sold $6 million worth of Cyberonics stock earlier this year at a time when the shares were higher than now. He said that he did so to build a new house, and that shareholders should like that, because it shows he's putting down roots in Houston.
A Medtronic spokeswoman said that it "continues to believe ours is an attractive offer," and that it still hopes to reach a negotiated deal. One possible natural competitor to acquire Cyberonics, St. Jude Medical Inc., said it has no intention of making a bid for the company now. St. Jude had an option to purchase Cyberonics in 1996, but chose not to exercise it. At the time, it held about 13% of Cyberonics's shares, an amount that has since dwindled to less than 5%.
********************
Interesting rebuff. Have to look at Cyberonics some when the volatility ceases.
Jack |
