Stryker Corp. (NYSE:SYK) and Boston Scientific Corp. (NYSE:BSX) are in "advanced talks" over a possible $1.4 billion deal for Boston Scientific’s pain management business, according to a Bloomberg News report.
A separate deal for Boston Scientific’s neurovascular unit could be "several weeks away," according to the news service, possibly for as much as $1.0 billion.
But the deal for the neurostimulation-based pain control unit could be be announced next week, Bloomberg reported, citing "three people with knowledge of the transaction." It’s likely to be an all-cash transaction for $1.4 billion to $1.5 billion, the sources said. Stryker CFO Curt Hartman told analysts during a second-quarter conference call that the company likes to pay in cash. Stryker closed the three months ended June 30 with $4.03 billion of cash and marketable securities, Hartman said, up $1.07 billion or 36.1 percent, and closed a $1.0 billion debt offering during the first quarter.
Stryker has consummated six buyouts during the last five years, according to the Bloomberg report, averaging $164.9 million each. The largest was its $525 million deal to acquire medical device recycler Ascent Healthcare Solutions Inc. last year.
Natick, Mass.-based Boston Scientific’s neuromodulation division is developing a pain management device it acquired with its $740 million Advanced Bionic buyout in June 2004. The spinal cord neuro-stimulator that was making waves in the pain management arena. BSX officials were bullish on the deal at the time, telling analysts that Advanced Bionic sales could reach nearly $4 billion by 2010. But sales were only $285 million last year and $72 million during the second quarter, flat compared with the same period last year.
BSX put the unit on the block earlier this year, along with the neurovascular segment, amid a month-long shutdown of its cardiac device business that cost it an estimated $5 million a day. Peeling off non-core assets is part of CEO Ray Elliott’s push to re-establish Boston Scientific, Leerink Swann & Co. analyst Rick Wise told Bloomberg.
“They have to do everything they can to optimize growth for the long run,” Frederick Wise, a New York-based analyst at Leerink Swann & Co., said in an Aug. 5 telephone interview. “So why not thoughtfully prune the current portfolio and double down in areas where you have the most confidence of your opportunities.”
Stryker is likely to fold the BSX business into is MedSurg division, which accounted for 41 percent of the company’s Q2 sales. Sales were up 16 percent for the division during Q2 2010, with the Ascent deal adding 6 percent and core businesses delivering 10 percent growth.
“This is a transaction that makes sense,” William Plovanic, an analyst with Cannacord Genuity in Evanston, Ill., told Bloomberg. “It will help Stryker leverage its distribution channels. And the neuromodulation business is at least as profitable, if not more so, than Stryker’s overall business.”