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Smith & Nephew Shares Advance After Takeover Speculation

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Aug. 31 (Bloomberg) -- Smith & Nephew Plc rose the most in almost eight months in London trading after four U.K. newspapers reported that traders were speculating the maker of artificial knees and hips may receive a takeover offer.

Smith & Nephew climbed 29 pence, or 4.9 percent, to 625.5 pence, giving the London-based company a market value of 5.58 billion pounds ($9.1 billion). The gain was the biggest since Jan. 10, following a 3.9 percent jump yesterday. The Guardian today cited “renewed talk” of a bid by Stryker Corp. amounting to 850 pence a share.

Investors have been speculating about an acquisition of Smith & Nephew since December, when the Daily Mail said a U.S. private equity group may make a bid. Johnson & Johnson looked at buying the company, a person familiar with the plan said in January. Regulators probably would block J&J or Stryker from buying Smith & Nephew, said Justin Smith of MF Global.

“The combined market shares of the hip and knee implant businesses would be anti-competitive,” Smith, a London-based analyst, wrote in a report today. Divestments that antitrust authorities are likely to require “would also compromise the strategic rationale of an acquisition because the synergies would be so limited.”

‘Hot Gossip’

Jon Coles, a spokesman for Smith & Nephew at Brunswick Group in London, declined to comment on the newspaper reports. William Price, a spokesman for Johnson & Johnson in New Brunswick, New Jersey, and Tamara Cutler, a spokeswoman for Stryker in Kalamazoo, Michigan, said their companies don’t comment on speculation.

The Independent reported today that Stryker may offer 850 pence to 900 pence a share. The Daily Mail said Biomet Inc. may bid 900 pence a share, citing “hot gossip” among traders. The Times also reported a “reheated rumor” that Stryker was considering an 850-pence bid.

Most of Stryker’s recent acquisitions have been of companies that operate in faster-growing markets than hip and knee replacement, David Keiser, an analyst for Northcoast Research Holdings LLC in Cleveland, said in an interview.

“They’re targeting markets where there’s stronger growth outlooks, so I’m not sure Smith & Nephew would be consistent with the acquisition strategy we’ve seen,” Keiser said.

Stryker’s Acquisitions

Stryker has completed at least 10 acquisitions in the past five years, according to data compiled by Bloomberg. The largest, at $1.5 billion, was the purchase in January of a Boston Scientific Corp. unit that makes devices to treat strokes.

Olivier Bohuon took over as Smith & Nephew’s chief executive officer in April from David Illingworth, who retired. Bohuon probably will argue to shareholders that he can deliver more value than 900 pence a share, MF Global’s Smith said. He recommends selling Smith & Nephew shares.

A Johnson & Johnson bid still seems the most plausible, said Lisa Bedell Clive, an analyst at Sanford C. Bernstein Ltd. in London. The U.S. company could extract cost savings from all three of Smith & Nephew’s businesses, she said in a telephone interview.

Smith & Nephew makes orthopedics such as joint replacements, endoscopy products, or equipment used in minimally invasive surgery, and products to treat hard-to-heal wounds.

Talks in 2006

Smith & Nephew held talks with Biomet in 2006 but lost out on a takeover of the Warsaw, Indiana-based implant maker to a group of private-equity firms that included Blackstone Group LP, KKR & Co., TPG and the buyout arm of Goldman Sachs Group Inc.

Antitrust officials probably would approve a combination of Smith & Nephew and Biomet, MF Global’s Smith said. Still, Biomet has so much debt from the buyout that banks probably wouldn’t lend it the money to buy Smith & Nephew, he said. Smith & Nephew shareholders probably would object if the company planned to issue shares to buy Biomet, he wrote.

Biomet “didn’t seem like they were interested, from the conversations I’ve had with them,” Keiser said.

“We don’t comment on market speculations,” said Bill Kolter, a spokesman for Biomet.

Zimmer Holdings Inc. might make sense as an acquirer, because the company doesn’t have a presence in sports medicine, as Smith & Nephew does, Keiser said. However, Smith & Nephew is “a little bigger than the transactions they’re talking about,” he said. “But if Smith & Nephew is in play, they’d look.”

A call to Garry Clark, a spokesman for Zimmer in Warsaw, Indiana, wasn’t immediately returned.

To contact the reporter on this story: Phil Serafino in Paris at pserafino@bloomberg.net

To contact the editor responsible for this story: Phil Serafino at pserafino@bloomberg.net

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