The $48.25-per-share bid tops ArthroCare’s $45.38 Jan. 31 closing price; investors sent the stock above the offering price today on Wall Street, with prices peaking at $48.90 per share before subsiding to $48.51 as of about 10:50 this morning, up 6.9% on the day.
"This is a compelling opportunity to add ArthroCare’s technology and highly complementary products to further strengthen our sports medicine business. Together, we will be able to generate significant additional revenue from the more comprehensive portfolio, combined sales force and Smith & Nephew’s global footprint. With this transaction, we are again accelerating our strategy to rebalance Smith & Nephew towards higher growth."
An acquisition became more feasible for ArthroCare early this year, when it agreed to pay $30 million to settle a $400 million fraud case with the U.S. Justice Dept. The Jan. 7 deal put to rest a years-long probe into an alleged scheme designed to generate false revenue numbers to meet internal and external forecasts by dumping inventory, first with a distributor called DiscoCare and eventually via free shipments to end-users.
Smith & Nephew said it expects the ArthroCare buyout to add roughly $85 million to its annual trading profit after integration, slated to be complete in about 3 years. The merger is projected to cost about $100 million over 3 years, according to a press release. The British healthcare conglomerate said it plans to finance the deal by tapping a $1 billion credit revolver and a new, $1.4 billion term loan. Smith & Nephew said it’s halting its $300 million share buyback program after repurchasing some $226 million worth of its own stock.
"ArthroCare and Smith & Nephew know each other well from our licensing and supply arrangements, and this is a natural transaction for both companies. The board believes that this transaction is in the best interest of our shareholders," ArthroCare president & CEO David Fitzgerald said in prepared remarks.