UPDATED Nov. 24 with analysis from Morgan Stanley.
Stryker (NYSE:SYK) is free to make an offer for Smith & Nephew (FTSE:SN, NYSE:SNN) after a 6-month no-bid period elapsed last week, fueling speculation that the U.S orthopedics giant will move on its British rival.
Under British law Stryker was barred from bidding on Smith & Nephew after demurring in May.
Rumors of a potential Stryker-Smith & Nephew union sent the British firm’s shares up that month, before Stryker disavowed its interest in the hookup. Medtronic (NYSE:MDT) was also said to be in the running, but soon thereafter shocked medtech with news of its biggest acquisition ever, the pending $43 billion buyout of rival Covidien (NYSE:COV).
Now the markets on both sides of the Atlantic are watching closely to see whether Stryker makes a move. There’s some pressure involved, according to 1 report, as Smith & Nephew is mulling a sale of its wound management business; Stryker (or any other suitor) would have to make its offer before such a sale occurs.
But at least 1 analyst shop today questioned whether the acquisition would be as good for Stryker as the consensus view seems to think.
"Stryker’s culture is about growth, financial flexibility and diversity, and we remain concerned that an escalation of commitment into a consensus transaction is not likely to be positive for shareholders. Our analysis suggests that a hypothetical transaction would dilute Stryker’s organic growth, eliminate balance sheet flexibility, and result in an [return on invested capital] potentially below Stryker’s [weighted average cost of capital]," according to Morgan Stanley analysts David Lewis and Jonathan Demchick. "We do not believe that Stryker is disadvantaged following Zimmer/Biomet and our orthopedic power ranking suggests that Stryker has more than enough critical mass to compete."