Medtronic to Seek `Opportunistic' Deals, CEO Says
Medtronic CEO William Hawkins
Craig Lassig/Bloomberg
William Hawkins, chief executive officer of Medtronic Inc.
William Hawkins, chief executive officer of Medtronic Inc. Photographer: Craig Lassig/Bloomberg
Medtronic CEO William Hawkins
Craig Lassig/Bloomberg
William Hawkins, chief executive officer of Medtronic Inc., poses with a CoreValve transcatheter aortic valve system at company headquarters in Minneapolis.
William Hawkins, chief executive officer of Medtronic Inc., poses with a CoreValve transcatheter aortic valve system at company headquarters in Minneapolis. Photographer: Craig Lassig/Bloomberg
Medtronic Inc., the world’s largest heart-device maker, will be “opportunistic” in seeking acquisitions of as much as $1 billion to restore sales growth, Chairman and Chief Executive Officer Bill Hawkins said.
The company, based in Minneapolis, will focus on “tuck- in” acquisitions that fill holes in its business, Hawkins said. While the device maker won’t exclude larger deals if “we see something that is a good strategic fit,” transactions larger than $1 billion “are not our focus right now,” Hawkins said in a telephone interview today.
Medtronic reduced its earnings forecast for fiscal year 2011 after lower first-quarter sales failed to meet analyst and company estimates, sending the company’s shares down almost 11 percent on Aug. 24. Hawkins said then that Medtronic was surprised by the “magnitude of the market slowdown” in its spine and heart-rhythm device businesses, which accounted for more than half of sales.
“If we see something that’s a good strategic fit, we have the ability to act on it,” Hawkins said. “We’re not in a reactive mode, like we have to go out and do more acquisitions now.”
Medtronic rose 60 cents, or 1.9 percent, to $32.98 at 4:01 p.m. in New York Stock Exchange composite trading. The shares fell 15 percent in the 12 months through yesterday.
The company’s strategy is to grow its businesses, invest in new-product research and make targeted acquisitions, Hawkins said. Medtronic has also spent about $320 million to take minority stakes in early-stage companies with promising technologies, he said.
“I like the strategy we have put in place, and we are executing on that,” Hawkins said.
Sales Target
In announcing on Aug. 24 its results for the fiscal first quarter ended July 30, Medtronic lowered its sales growth target for the year to a range of 2 percent to 5 percent, from the 5 percent to 8 percent it had forecast in June.
“About two-thirds of Medtronic’s products are in markets that aren’t growing much,” said Sean Lavin, an analyst at Lazard Capital Markets in New York, in a telephone interview on Aug. 30. “They say their goal is growth, and if they are going to grow then they really need to do acquisitions.”
Sales of Medtronic’s core products, devices used for back surgery and pacemakers and defibrillators used to correct irregular heart rhythms, have slowed.
Spine Surgery
Sales of spine surgery devices fell 9.4 percent from a year earlier to $829 million in the first quarter. Heart-rhythm products dropped 8.3 percent to $1.23 billion. Together the two product areas accounted for 54 percent of Medtronic’s business. The company’s third-largest business, cardiovascular devices including stents used to prop open clogged heart arteries, grew 4 percent to $717 million in the quarter.
Medtronic generated $4.1 billion cash from operations last year and may produce $4.9 billion in its current fiscal year, Lavin said. The company can use its cash flow to pursue growth through acquisitions, Lavin said in a note to clients on Aug. 25.
Economic conditions and Medtronic’s cash allow it “to be more opportunistic at a time when other are being a bit more cautious,” Hawkins said.
The company is “seeing a lot of activity” in innovative products in ophthalmology, heart device and neuromodulation, implantable devices that use electrical pulses to treat pain and other conditions, he said.
Nine Acquisitions
Hawkins declined to comment on the specific areas in which the company is looking to do deals.
Medtronic has announced or completed nine acquisitions since January 2009, the largest of which was its February 2009 purchase of CoreValve Inc., a maker of heart valves, for $700 million.
Medtronic disclosed plans on Aug. 17 to acquire Osteotech Inc., an Eatontown, New Jersey-based maker of human bone and bone tissue products, for about $123 million. It also completed its $370-million acquisition of ATS Medical Inc., a maker of heart valves and other products used in cardiac surgery, in August.
To contact the reporter on this story: David Olmos in San Francisco at dolmos@bloomberg.net
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