Smith & Nephew pushed into deal frenzy
Smith & Nephew was pushed firmly into the deal frenzy gripping the healthcare industry on Thursday after its US rival Stryker said it had been evaluating a takeover bid for the UK medical device maker.
The confirmation that a potential deal had been under consideration caused Smith & Nephew shares to rise 3.6 per cent in London, adding to gains made on Wednesday.
Stryker’s decision to make public its interest marked an unusual twist at the end of a day in which the company had responded to a report in the Financial Times by issuing a statement ruling out making an unsolicited bid in the next six months.
Smith & Nephew’s stock had surged more than 17 per cent to £11.20 on Wednesday after the FT published a story saying Stryker had hired banks and was working on arranging finance for a possible bid. Stryker’s statement sent the shares back to £10.29.
However, in an interview with Fox Business late on Wednesday, Kevin Lobo, Stryker’s chief executive, said: “We were actually in preliminary evaluations about considering a transaction.”
He added that following Smith & Nephew’s price rise, Stryker was contacted by the UK Takeover Panel and under its rules had to make a statement about its intentions.
“It was [at an] early [stage], but based on the price spike of Smith & Nephew we were called by the panel and we had to make this public statement.”
An acquisition of Smith & Nephew would cut Stryker’s tax bill using a so-called inversion, under which a US company uses a foreign takeover to relocate its headquarters, thus sheltering overseas revenues from US taxation.
To qualify for the inversion, at least 20 per of the shares in the combined company would need to be held outside the US, meaning Stryker, which makes hip and spine implants, would need to fund a large proportion of any bid with its own stock.
Smith & Nephew would be the second big UK healthcare company to face takeover interest from a US rival within weeks, after Pfizer’s failed £69.4bn offer for AstraZeneca – another deal that was driven in part by potential tax savings.
Smith & Nephew has declined to comment on the process.
A bid by Stryker would have added to the wave of dealmaking in the healthcare sector, with more than $150bn of mergers and acquisitions proposed so far this year.