When he took over the corner office at the world’s largest medical device company last year, Omar Ishrak said Medtronic (NYSE:MDT) would make a concerted push into emerging markets, especially China, on his watch.
Late yesterday Ishrak made good on that pledge, when Fridley, Minn.-based Medtronic agreed to drop $816 million on China Kanghui Holdings (NYSE:KH).
The $30.75-per-share deal is worth about $755 million after Kanghui’s cash on hand is accounted for, according to a press release.
"This agreement is directly aligned with our corporate strategies of globalization and economic value," Ishrak said in prepared remarks. "Kanghui represents a significant investment in China, accelerating Medtronic’s overall globalization strategy with an established value segment distribution network and strong R&D and operational capabilities."
"Kanghui brings Medtronic a broad product portfolio, a strong local R&D and manufacturing operation, a vast China distribution network and an exceptional management team. This move will provide Medtronic sustainable advantages in the fast-growing Chinese orthopedic segment, as well as a foothold in the emerging global value segment in orthopedics," added Chris O’Connell, president of Medtronic’s restorative therapies group.
Medtronic said Kanghui’s product portfolio includes devices for trauma, the spine, joint reconstruction that complement its own suite of products. The deal is expected to close "in the next few months," according to the release, and must still be approved by Kanghui’s shareholders. Medtronic said it expects the deal to be earnings neutral in FY 2013 and FY 2014 "as the company intends to offset any dilutive impact of the transaction," according to the release.
About 2 months into his tenure last summer, Ishrak made clear that his vision for Medtronic’s future including a concerted effort to build its business in Brazil, Russia, India and China. The Chinese medical device market could eclipse the American market by the end of the decade, he said.
"The biggest long-term opportunity will be to meet the needs of billions of people who have no access to healthcare at all,"Ishrak wrote in an email to employees in August 2011. "The population in emerging markets is tenfold that of developed countries. These statistics are further compounded by the fact that U.S. market is essentially flat. Reaching the global middle class opens up opportunities to us beyond anything we’ve ever seen before."