Two Hearts That Beat As One?

The chief product of ATS Medical (ATSI) is a new kind of mechanical heart valve--and it's giving rivals some blood-pounding competition. The Street has become aware of ATS: Its shares have doubled this year, to 8. But there's bigger reason behind the smart leap: takeover talk.

Savvy investors have been buying into ATS on the belief that the valve maker will soon get a buyout offer from Medtronic (MDT), a major world producer of implantable cardiac pacemakers and also a maker of prosthetic heart valves.

One New York money manager who has been accumulating ATS shares puts the value of the stock at 12, based on the prospects of the company's new improved valve. In a buyout, the stock could be worth even more, says this pro, who says an offer from Medtronic seems "imminent." He believes ATS has a good product and technology and a seasoned management team led by Chairman and CEO Manuel Villafana. (In 1976, Villafana founded St. Jude Medical, which the following year introduced the mechanical valve that is now the industry's standard.)

"There's a good fit between Medtronic and ATS," says Rachael Scherer, an analyst at Dain Bosworth. She thinks it's likely that ATS will be taken over one day--but couldn't say when or by whom. Scherer says Medtronic "is having a problem with its own heart valve," and it will have to figure out whether to focus on resolving the difficulty or go after ATS, whose sales are expected by one investor to double to $12 million this year. Currently, Medtronic is developing a new prosthetic heart valve.

ATS valves are marketed in 20 countries. In the U.S., the company is still seeking approval from the Food & Drug Administration.

The ATS product is a possible successor to the artificial valve that has been in general use since the 1960s. The industry's standard--the St. Jude valve--has not been changed much since its introduction, notes Villafana. St. Jude has about 64% of the world's $500 million mechanical-valve market.

The ATS valve, says Villafana, is easier to implant and monitor. And it has a proprietary "open pivot" design that improves blood flow and reduces the likelihood of clots. Villafana and Medtronic spokesman Dick Reed declined to comment on takeover rumors.

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