Stryker Doesn’t Plan Smith & Nephew Bid, Denies FT Report

Stryker Corp. said it doesn’t plan to make a takeover offer for orthopedics company Smith & Nephew Plc, denying a report in the Financial Times that sent Smith & Nephew shares soaring.

The U.K. Takeover Panel asked for the statement, Kalamazoo, Michigan-based Stryker said. Under U.K. rules, Stryker now can’t bid for Smith & Nephew for six months except in certain circumstances. Those requirements still could be met, reviving the deal, said Lisa Bedell Clive, an analyst at Sanford C. Bernstein & Co.

“It does not preclude them from approaching the Smith & Nephew Board if the board is willing to engage,” Clive said in a note to clients. “We continue to think that Smith & Nephew remains a viable target for Johnson & Johnson or Stryker as the orthopedic industry enters a new phase of consolidation.”

The Financial Times reported earlier today that Stryker had retained investment bankers and was putting together financing for a bid for Smith & Nephew. The report sent shares of the London-based company up as much as 18 percent, its biggest intraday advance in 16 years, before the Stryker denial.

The company was in the early stages of evaluating Smith & Nephew for an acquisition, Stryker Chief Executive Officer Kevin Lobo told Fox Business Network today. Speculation about the acquisition and the related movement of Smith & Nephew’s shares led the U.K. Takeover Panel to contact Stryker about its intentions, Lobo said. Stryker issued the statement that it didn’t intend to make an offer at the panel’s request, he said.

The acquisition would enable Stryker to cut its tax bill by relocating to the U.K., while expanding its portfolio to compete for hospitals’ business with larger rivals including J&J and Medtronic Inc.

Bundling Products

“What we have seen lately is companies increasingly bundling their products and offerings to gain or maintain market share,” said Jason McGorman, an analyst at Bloomberg Industries in Skillman, New Jersey. “Hospitals are consolidating the number of vendors they are looking at for devices to cut supply costs,” he said in a telephone interview.

Smith & Nephew rose 4.3 percent to close at 993.5 pence in London, giving the company a market value of 8.87 billion pounds ($14.8 billion). Stryker gained 2.8 percent to close at $82.64 in New York.

Stryker’s denial of planning an offer puts it in the same situation faced by Pfizer Inc., after London-based AstraZeneca Plc rebuffed a $117 billion bid from that drugmaker. Stryker and Pfizer are prohibited from unilaterally trying to revive a deal for six months, unless there is an outside bid, the target company initiates talks or there is a material change.

Stryker reserved its right to announce or participate in any possible offer should such circumstances arise.

Yin Becker, a Stryker spokeswoman, didn’t return phone calls or e-mail seeking comment.

Pfizer Rejection

Pfizer proposed what would have been the biggest deal ever in the pharmaceutical industry, which would have allowed it to transfer headquarters to the U.K. to gain a lower tax rate and add new cancer drugs to its pipeline. More U.S. companies are now pursuing the tax move, called an inversion, because it allows them to slash their corporate tax rate and give themselves cheaper access to cash held outside the country.

The U.K. has a corporate tax rate of 21 percent, which is dropping to 20 percent next year, compared with the 35 percent federal rate in the U.S. In addition, the U.K. generally only taxes profits that companies earn within its borders. The U.S. taxes its companies on profits they earn overseas when they repatriate the money and after credits for foreign taxes.

Even without the tax benefits, Stryker may be looking to get bigger as the orthopedic market consolidates, analysts said.

Rival Zimmer Holdings Inc. agreed to acquire Biomet Inc. for $13.4 billion last month to leapfrog Stryker as the second-largest company in the $45 billion market. Both J&J, based in New Brunswick, New Jersey, and Minneapolis-based Medtronic have said they plan to bundle their products and appeal to hospitals by providing a broader range of services.

Investors have long speculated that Smith & Nephew would attract a takeover bid, though antitrust issues were seen as an obstacle. An acquisition became more likely after Zimmer’s agreement to buy Biomet changed the landscape “pretty dramatically,” Clive said in an e-mail.

She speculated a bid of as much as 1,100 pence would be reasonable for Smith & Nephew, based on the cost savings that a company like Stryker or J&J could realize.

(Corrects network name in fifth paragraph of story that moved yesterday.)
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