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Covidien seeks bigger game

Medical supplier looks at expansion options in Asia

By Robert Weisman
Globe Staff / May 6, 2010

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MANSFIELD — Medical supplies giant Covidien, which has snapped up more than a dozen small companies in the past three years, may scout for larger acquisitions as the industry consolidates.

“We don’t take bigger deals off the table because it’s all about value,’’ Covidien chief executive Richard J. Meelia said. “If it creates shareholder value, we would do that.’’

While deal-making is part of its heritage, Covidien, the former Tyco HealthCare, has avoided blockbuster deals since it was spun out of parent Tyco International Ltd. in 2007. Instead, it has sought to fill gaps in its diverse product line through more modest buyouts it calls “tuck-in’’ or “bolt-on’’ deals. The largest was its $440 million purchase last year of VNUS Medical Technologies, a San Jose, Calif., company that makes devices for minimally invasive treatment of venous reflux disease.

But over the past year, a fresh consolidation wave has swept over the pharmaceuticals and devices industry, creating a smaller number of larger players in an increasingly global marketplace.

Massachusetts companies have emerged as buyers and sellers in the new round of megadeals. Charles River Laboratories International Inc. of Wilmington disclosed last week it had agreed to buy Chinese drug development contractor WuXi PharmaTech Inc. for $1.6 billion. And early last month, Billerica life sciences toolmaker Millipore Corp. agreed to be acquired by Germany’s Merck KGaA for $6 billion.

Covidien, which is incorporated in Ireland but has its global headquarters here, as well as a logo emblazoned on the Green Monster in left field at Fenway Park, is more likely to be a buyer — though its targets remain a mystery and a source of speculation among analysts.

Matthew Dodds, director of institutional research for financial giant Citigroup in New York, said Covidien probably won’t stray outside of its four areas of market focus: surgical supplies, oximetry monitoring, vascular devices, and specialty pharmaceuticals such as pain medication and controlled substances like morphine and codeine.

“It’s really going to depend on what opportunities show up, and whether they make sense,’’ Dodds said, suggesting that Covidien’s leaders have shown discipline in their acquisition strategy. “What I don’t see from Rich [Meelia] is the necessity to add another leg to their business. They have plenty to work with. There’s no obvious larger candidates out there on the radar screen in some of their core business areas, like surgery, because they already have critical mass.’’

Covidien had $1.7 billion in cash on its balance sheet at the end of March, and has told analysts it plans to spend about $750 million a year on acquisitions — though some believe that amount could increase if the company found the right candidate for a purchase, especially outside of the United States.

Like other life sciences companies, Covidien wants to position itself in Asia both to take advantage of growing economies there and to tap into the continent’s innovation and low-cost manufacturing. In 2006, it bought a small Chinese distributor, Shangriland Group/Surgiland Group, and remains open to other deals there.

“We’re looking at putting some infrastructure over in Asia,’’ said Amy A. Wendell, senior vice president for strategy and business development, citing a plan to boost research in China. “We’re actively looking right now at what markets we want to be in over there.’’

Covidien, which posted revenue of more than $10 billion last year, has about 42,000 employees worldwide. It employs more than 1,300 at its Massachusetts sites, including Mansfield, Bedford, and Chicopee, up from 950 when it split from Tyco.

“While the whole economy’s imploding, we’ve been down here expanding,’’ said Charles J. Dockendorff, Covidien’s chief financial officer.

Robert Weisman can be reached at weisman@globe.com.