Devices maker Stryker mulls $16-bn bid for British peer Smith & Nephew
25 November 2014
US medical device maker Stryker Corp is exploring a $16-billion bid for British medical-device maker Smith & Nephew Plc, Bloomberg yesterday reported, citing unnamed sources.
The report comes just days before the expiry of a six-month cooling off period, under the UK takeover rules.
In May this year, Stryker said that it does not intend to make an offer for Smith & Nephew for six months after the Financial Times reported it has hired banks and is working on obtaining funding for a possible bid for the UK-listed medical device maker. (See: Stryker denies Smith & Nephew bid)
That standstill period expires this week, after which the Michigan-based company is free to table a bid.
Stryker is considering structuring the transaction as a so-called tax inversion, allowing it to move its base to the UK, where the taxes are lower compared to the US, the report said.
But a spate of recent overseas acquisitions made by US companies in order to move their tax base to countries with lower tax rates had forced the US Treasury in September to unveil harsh changes on corporate inversions and scuppered several high profile deals, including Illinois-based AbbVie's proposed $55-billion (£32 billion) takeover of Irish drug maker Shire Plc. (See: AbbVie to reconsider $55-bn Shire deal)
US companies argue that reincorporating into countries with low tax rates would bring them on a level playing field against global competitors who pay lower taxes. But US lawmakers have criticised such moves as unpatriotic.
But Stryker is not looking at saving taxes since its tax rate is around 23 per cent, while Smith & Nephew's tax rate is 29 per cent, but a deal would help Stryker spend its profits generated overseas instead of re3patriating them to the US where it is liable to pay a 35-per cent corporation tax.
Smith & Nephew, which started off as a dispensing chemist in 1856, is the world's largest maker of arthroscopy products, second-largest maker of advanced wound management products, third-largest producer of trauma and clinical therapy products and fourth-largest producer of orthopaedic reconstruction products.
The company has operations in 32 countries and sells over 1,000 products in over 90 countries.
With a market cap of £10.2 billion ($16 billion), the London-based company has a presence in more than 90 countries and generated sales of $4.3 billion in 2013.
In recent times Smith & Nephew has been frequently reported by analysts as a takeover target.
In 2010 Johnson & Johnson was reported to be considering making a fresh takeover bid for the FTSE 100 company after the board of Smith & Nephew had earlier rejected the US healthcare giant's informal takeover offer of 750 pence-a-share, or £7 billion.
In June this year, Bloomberg had reported that US medical device maker Medtronic Inc was weighing a deal to acquire London-based Smith & Nephew in order to lower its taxes by moving its base to the UK.
Founded by Dr. Homer Stryker as the Orthopedic Frame company in 1946, Stryker is one of the world's leading medical technology companies offering a diverse array of medical devices, including reconstructive implants, medical and surgical equipment, and neurotechnology and spine products.
Stryker competes with DePuy Orthopaedics, Zimmer Holdings, Medtronic, Synthes, Smith & Nephew, and Biomet, and holds a 16-per cent share in the global orthopaedic market.
The company sells its products through local dealers and direct sales force to doctors, hospitals, and other healthcare facilities, as well as through third-party dealers and distributors primarily in the US, Ireland, Germany, France, Switzerland, the UK, Japan, Canada, the Pacific region, and Latin America.
Stryker posted net profit of $1 billion in 2013 on revenues of $9 billion, and has a market cap of $34.6 billion.