Stryker-Smith & Nephew tie up would face roadblocks, bankers say
A tie up between Stryker Corporation (NYSE:SYK) and Smith & Nephew (NYSE:SNN) would face significant regulatory risk, said three industry bankers.
The two medical device companies overlap in the orthopedic implants market, said two of the bankers. Regulatory authorities would take issue with the significant overlaps between the companies, which would be problematic for a deal to clear, added the bankers.
This week the Financial Times reported that Kalamazoo, Michigan-based Stryker was raising debt for a possible bid for Smith & Nephew. Stryker subsequently denied it was planning a bid for the UK company.
The idea of a tie up between the two companies had been floated for a long time in the banking community, said a fourth banker, who added a deal would be highly unlikely. Stryker does not need to do a large deal and has a history of being conservative when it comes to acquisitions, this banker pointed out.
Stryker recently completed several acquisitions, including Berchtold Holding, a provider of healthcare equipment such as surgical tables and surgical lighting systems, Patient Safety Technologies, a healthcare IT company, and Pivot Medical, a maker of products for hip arthroscopy. Berchtold was acquired for USD 172m, Patient Safe for USD 120m and Pivot for an undisclosed sum.
While two of the bankers said they were not aware of an impending debt raise by Stryker, a potential debt raise would not be unusual for a company like Stryker, said one of the bankers. The company has a large portion of its cash offshore and regularly raises debt for corporate purposes such as its quarterly dividend policy, added the banker. Stryker last announced a dividend on 22 April of USD 0.305, which will be payable on 31 July.
On 28 April, the company announced it had priced an offering to sell USD 1bn in notes. The funds were to be used for refinancing of indebtedness, as well as general corporate purposes. The company has USD 2.764bn in debt.
While the orthopedic implant market may not be one in which Stryker would be able to bulk up, the company could buy large assets in other areas, said the second banker. Stryker has a wide strategic focus, the banker noted and could make large buys in adjacent areas. One of the bankers noted that Stryker could make buys in wound care as a way to expand overseas. Stryker has a medical and surgical division, a reconstructive division and a neurotechnology and spine division.