Makers of Surgical Devices in Stock Deal Valued at $3.6 Billion
By MILT FREUDENHEIM -- November 3, 1998
NEW YORK -- In a strategic shift, Medtronic Inc.,
the biggest maker of heartbeat regulators, said
Monday that it had agreed to buy the Sofamor Danek
Group for $3.6 billion in Medtronic stock.
Medtronic said the deal would double its stake in
devices for brain and spine surgery at a time when
sales growth has slowed in its core business in
pacemakers and other devices that fine-tune heart
performance.
Revenue of Sofamor Danek, which is based in Memphis,
has been growing four times as fast as sales of
Medtronic, an older, much bigger company that is based
in Minneapolis.
Medtronic had already begun altering its thrust by
hiring more sales people to visit orthopedic spine
surgeons and neurosurgeons. The surgeons are Sofamor
Danek's main customers.
Sofamor Danek has about 40 percent of a
$1-billion-a-year surgical device market, which is
growing 22 percent to 25 percent a year, said E. Ronald
Pickard, chairman and chief executive of Sofamor. By
contrast, sales of cardiovascular devices are growing
in "the high single digits," said William W. George,
chairman and chief executive of Medtronic.
Johnson & Johnson will have about 20 percent of the
spinal implant market when it completes its recently
announced acquisition of DePuy Inc., said Rick Wise, an
analyst at Bear Stearns & Co.
Sofamor projects sales of $400 million this year,
mainly in hardware like rods and screws, which hold
together damaged vertebrae, and an imaging device for
brain surgery. About 15 percent, or $400 million, of
Medtronic's $2.6 billion sales are in related
businesses, including pain management devices and
electronic stimulators to treat tremors.
"Sofamor Danek has a tremendous position in a field
that will complement what we were doing," George said.
"They have lots of the same customers who we've worked
with for years."
Several analysts hailed the deal, which valued Sofamor
Danek at $115 a share, or 13 percent above its closing
price on Friday on the New York Stock Exchange. On
Monday, Sofamor Danek shares rose $8.50, to $110.125.
Medtronic shares rose $1.5625 cents, to $66.5625, on
the Big Board.
Under the deal, the price per share for Sofamor will be
adjusted if Medtronic shares trade below $56.97 or
above $69.63 in the 15 days before Sofamor Danek
shareholders meet to vote on the acquisition.
Kurt Kruger, an analyst in San Francisco at Nationsbanc
Montgomery Securities, said Sofamor Danek could add $40
million in sales next year if it receives federal
regulatory approval for a new spinal implant device to
relieve back pain. Analysts are predicting approval
early in 1999 for the device, which is called a spinal
cage.
Last year, an advisory committee of the Food and Drug
Administration sent Sofamor back to the drawing board
to improve the cage, which Kruger described as an
ultra-strong metal column an inch long and the diameter
of a cigar. Similar devices are already being sold by
the Spinetech unit that was recently acquired by Sulzer
Medica, a unit of Sulzer Ltd. of Switzerland, and the
AcroMed unit that Johnson & Johnson is buying as part
of DePuy Inc.
As part of a reshuffling trend in heart devices, the
Guidant Corp. recently agreed to buy a heart rhythm
device business from Sulzer Medica.
"Medtronic and Sofamor Danek are an excellent fit,"
Wise of Bear Stearns said. "No other competitor has the
unique portfolio of electronic stimulation, surgical
and spinal devices that the combined companies will
have."
Franz Tudor, an analyst at Oracle Partners, a health
care investment group, said the deal made sense. But he
said the opportunities for cost savings were limited
because of little overlap between the two companies in
manufacturing, sales and administration and research.
A state court in Houston recently awarded $400,000 to
plaintiffs who claimed injuries from a screw made by
Sofamor. Pickard said the device was used in a way not
recommended on the FDA-approved label. He said Sofamor
had disposed of more than 1,100 such lawsuits, winning
50 summary judgments and paying less than $2,000 each
in some 40 cases. The company intends to defend 2,000
remaining cases vigorously, he said.
Copyright 1998 The New York Times Company
|
