Medtronic Inc. (NYSE:MDT) to the rescue.
Less than a week after dissident shareholders prepared to stage a coup overthrowing the Osteotech Inc. (NSDQ:OSTE) board, the Fridley, Minn.-based medical device colossus swooped in to offer a $123 million buyout of the Eatontown, N.J.-based maker of bone-regenerative products.*
Medtronic agreed to pay $6.50 per share for Osteotech, according to a press release, and plans to roll the operation into the bone-healing division of its biologics business. The move will allow Medtronic to expand its orthopedic footprint into new treatment areas, including joint reconstruction, foot and ankle and sports medicine.
The $6.50-per-share offer is a significant premium over Osteotech’s stock price, which has hovered in the $3.40 range for the past 30 trading days. The offer comes as Osteotech CEO Sam Owusu-Akyaw and the company’s board girded for a nasty proxy war over the direction of the company, against a group of discontented shareholders led by Spencer Capital Opportunity Fund LP, Boston Avenue Capital LLC and Heartland Advisors Inc. Together, the group owns a roughly 24 percent stake in Osteotech; a fourth fund, Kairos Partners III LLP (which owns another 5.3 percent of Osteotech) added its voice in support of the dissidents August 11.
The group wanted a radical change in the company’s business model, citing its allegedly poor performance since its current management team took the reins in 2006. Owusu-Akyaw, formerly Osteotech’s COO, was named CEO that year. He and his team oversaw a 28 percent decline in Osteotech’s stock price since they took over the company, according to an investor presentation by the dissidents.
Citing factors including the $4 million loss the company posted in 2009 and the decision to let a $6.25-per-share 2005 acquisition offer from one of its main customers, the Musculoskeletal Transplant Foundation, go by the boards, the dissidents wanted to enact a series of reforms to turn the company around. Those included exploring "alternatives for maximizing shareholder value," likely shorthand for looking for a suitor to acquire the company. Interestingly, the dissidents’ presentation included several comparisons with Medtronic, calling it Osteotech’s "major competitor" and aiming to highlight Medtronic’s superior performance in terms of return on equity, assets and invested capital and margins on revenue.
Osteotech blasted back with a long rebuttal August 12, defending Owusu-Akyaw’s team’s record and the company’s improving prospects. The Medtronic deal seems to vindicate his vision for the company.
"Through the efforts of all our stakeholders, we have created a pipeline of biologics platforms unprecedented in the emerging biologics industry. We believe Medtronic’s global scale and scope across geographies and functions and its commitment to innovation make them an ideal partner to carry forward our mission," Owusu-Akyaw said in prepared remarks.
"With a unanimous vote, the board of directors of Osteotech approved this transaction because the board believes it offers significant value to our stockholders," added chairman Kenneth Fallon III. "We believe this is the best path forward for the Osteotech organization and products, and we look forward to finalizing this transaction smoothly and quickly."
News of the acquisition pushed Osteotech shares up nearly 64 percent to $6.45 in early-morning trading.
*Correction, August 17, 2010: This article originally name Memphis as Osteotech’s home base. The company is headquartered in Eatontown, N.J. Return to the corrected sentence.
