Topic: (NASDAQ:AVEI) Arterial Vascular Engineering, (NYSE:BAX) Baxter Intl Inc, (NYSE:BCR) Bard C R Inc, (NYSE:BSX) Boston Scientific, (NYSE:JNJ) Johnson & Johnson, (NYSE:MDT) Medtronic Inc, (NYSE:PFE) Pfizer Inc, Quote.com News Item #6629294 Headline: (UPDATE) Bidding For Pfizer Unit Pressures Shares Of Potential Buyers
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NEW YORK -(Dow Jones)- The bidding for Pfizer Inc.'s interventional-cardiology device unit Schneider Worldwide is putting pressure on the shares of some of the companies believed to be vying for it, market sources said Friday.
Since the first of the month, shares of Boston Scientific Corp. (BSX)and Arterial Vascular Engineering Inc. (AVEI), which sources identify as finalists in the bidding, have slid on fears that the acquisition would cause short-term dilution for the successful acquirer.
Boston Scientific, which closed Friday at $63.75, fell 12% in May, while Arterial Vascular, at $30.9375, was down about 15%.
Baxter International Inc. (BAX) is rumored to be a dark-horse bidder,while other possible, but less likely, candidates include Medtronic Inc.
(MDT) and Johnson & Johnson (JNJ).
A Pfizer spokesman declined to comment on the status of Schneider, saying only that the company is still reviewing its options for the subsidiary. A Boston Scientific spokeswoman said the company doesn't comment on market rumors. Arterial Vascular officials weren't available for comment.
Pfizer announced in February that it was exploring strategic options for its medical-technology group, including the possible sale of all or part of it. The group consists of Schneider; Howmedica, an orthopedics business; and American Medical Systems, which makes urological implants for patients suffering from erectile dysfunction and urinary incontinence. In January, the New York pharmaceutical giant sold its Valleylab unit, which makes electrosurgical and ultrasonic products, to U.S. Surgical Corp. (USS) for $425 million. Pfizer is seeking about $2 billion for Schneider, market sources said. They estimate that bids have ranged from $1 billion to $2 billion.
A pooling-of-interests acquisition of Schneider wouldn't be possible because such transactions can't involve corporate subsidiaries. Thus, any interested company would have to be prepared to complete a cash or stock purchase, which could result in significant goodwill amortization and therefore dilute earnings.
Arterial Vascular, in particular, could face significant earnings dilution if it completes a deal priced at more than $1.5 billion, observers said. The Santa Rosa, Calif., company has quickly become a major force in the red-hot market for coronary stents - the tiny metal scaffolds used to prop open blood vessels after a balloon angioplasty. But Arterial Vascular remains essentially a one-product company that needs to broaden its product portfolio, particularly since growth in the U.S. stent market is expected to cool off sharply in 1999.
Buying Schneider would go a long way toward expanding Arterial Vascular's product offerings. Schneider's angioplasty balloons are considered technologically advanced but have suffered from listless sales due to the lack of a competitive coronary stent. The company's Wallstent doesn't have enough radial strength to compete in coronary applications, but its sales have been rising, thanks to growing use of the stent in other areas of the body.
Some observers believe a successful bid for Schneider could dilute Arterial Vascular's 1999 earnings by as much as 50%. But Hambrecht & Quist Inc. analyst Robert Faulkner said such calculations fail to account for research and development cost savings from such a transaction. The company's longer-term growth prospects would appear more sustainable with Schneider than without it, Faulkner said. Using conservative operating assumptions, he estimated a worst-case scenario for Arterial Vascular at about 36% dilution in 1999 earnings on a bid of $2 billion.
Boston Scientific's interest in Schneider lies in the Pfizer unit's strong intellectual property portfolio, which includes patents for rapid-exchange catheters and cross-licensing agreements for certain angioplasty-balloon materials, sources said.
Schneider shares most of the key rapid-exchange patents with Guidant Corp. (GDT), Boston Scientific's archrival in interventional cardiology. Schneider successfully defended its rapid-exchange patents in a lawsuit four years ago against SciMed Life Systems Inc., now part of Boston Scientific. SciMed was ordered to withdraw its infringing catheters from the market and pay Schneider more than $60 million in damages. Also of interest to Boston Scientific is Schneider's cross-licensing agreements with C.R. Bard Inc. (BCR) and J&J's Cordis unit for patents on certain materials used in angioplasty balloons. Market sources said Boston Scientific wants access to Bard and Cordis' patents because some of its existing balloons may infringe on them. Boston Scientific is the leading maker of angioplasty balloons, which could cause antitrust problems for the Natick, Mass., company if it buys Schneider. But Piper Jaffray Inc. analyst Arch Smith pointed out that Schneider derives only about a third of its revenue from domestic sales. It is unlikely that Boston Scientific would have pursued its bid as far as sources believe it did, he added, if it weren't confident about overcoming such concerns. -By Louis Hau; 201-938-5240; louis.hau@cor.dowjones.com
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They can't all buy Schneider but someone just might buy American BioMed.
Regards, Jeff
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