The new group will bring together 2 global leaders in the growing markets of cardiac surgery and neuromodulation, with a combined equity value of $2.7 billion, the companies said in a joint statement today.
It will also be a leading player in cardiac rhythm management, especially in Europe and Japan, they added.
Cyberonics will hold a 54% stake in the new company and Sorin the rest. The business will be domiciled in Britain and will apply for dual listing on the NASDAQ and London stock exchanges.
“[The new company] will have several promising opportunities focused on multibillion-dollar markets, including complementary research programmes addressing heart failure, with an initial commercial launch in Europe anticipated in coming weeks," the statement said.
Neuromodulation involves devices that stimulate the vagus nerve, a superhighway connecting the brain to the rest of the body.
Cyberonics shareholders will receive 1 share of the new company for every share held, while Sorin shareholders will receive 0.0472 of a share in the new company for each Sorin share owned.
The exchange ratio implies a premium of 14.2% to Sorin’s closing share price yesterday, the companies said.
Details of the deal
At yesterday’s closing price, Cyberonics had a market value of $1.6 billion, or $400 million more than Sorin. The difference is due to better growth prospects, Jefferies analyst Martin Brunninger said, although Sorin’s shares soared more than 25% today before being suspended from trading for excessive gains .
Sorin’s sales account for over 60 percent of the combined entity’s total sales. Cyberonics had around $290 million in 2014 revenues, 1 production facilities and 650 employees, compared to Sorin’s sales of nearly $1 billion, 10 manufacturing sites and 3,900 workers.
The deal is expected to boost earnings per share from next year and pre-tax cost synergies between the 2 companies are estimated to total $80 million by the end of 2018. Sorin CEO Andre-Michel Ballester will helm the new entity, with Cyberonics CEO Dan Moore as chairman.
"I am delighted to announce this transformational merger between Sorin and Cyberonics, which we expect to create significant value for shareholders. As o1ne company we will be able to leverage our combined strengths, capture new opportunities and create new solutions to benefit patients and healthcare professionals alike. This is particularly exciting for our employees, who will be able to share technical expertise and innovate faster, ensuring that we serve our customers by remaining at the forefront of new product development which continues to be the foundation of our success," Ballester said in prepared remarks.
"This transformational transaction maximizes both companies’ strengths and leadership positions for the benefit of patients and our shareholders. Sorin is an ideal partner, given its heart failure programs and the ability to combine vagus nerve stimulation with cardiac rhythm management technology," Moore added. "Sorin’s well-established international operations are expected to accelerate our epilepsy growth strategy by enabling us to reach a larger number of potential new patients in the underpenetrated markets outside the U.S. while integrating Sorin’s technology expertise into future neuromodulation products. While each company has a strong track record of execution on its own, the geographic diversification, benefits of scale and strong financial profile of the combined company will create tremendous new opportunities to drive growth and build significant shareholder value."
Brunninger said the deal gives the new company a critical mass to maintain and win large tender-driven hospital accounts.
"Beyond operational synergies, we see strong R&D overlaps, which makes the [new company] an interesting medical technology play in an otherwise commoditizing industry," he said, adding the new group could become a takeover target.
Cyberonics shares will cease trading on the NASDAQ and Sorin shares will stop trading on the Milan exchange.
Cyberonics’ Q3 earnings
Cyberonics posted profit growth of 19.0% to $16.5 million, or 62¢ per share, on sales growth of 5.7% to $72.1 million for the 3 months ended Jan. 23, compared with the same period in 2014.
Adjusted to exclude 1-time items, earnings per share were 59¢, 2¢ ahead of expectations on Wall Street.
CYBX shares soared 19.5% to $72.17 today in heavy trading.
Vitaria CE Mark
In a separate release, Cyberonics said it won CE Mark approval in the European Union for its Vitaria autonomic regulation device for patients with moderate to severe heart failure.
"The Vitaria System includes an implantable pulse generator, vagus nerve lead, programming system and patient kit that have been specifically designed to deliver ART in a manner that promotes improvements in heart function and reduces symptom expression," emerging therapies vice president Bruce KenKnight said in a statement. "Our mechanistic understanding of [autonomic regulation therapy] is based on decades of insightful neurocardiology research and has facilitated development of cardioprotective dosing regimens. We look forward to bringing this exciting therapeutic treatment option to cardiologists and patients in selected European markets soon."
(€1 = $1.1358)