Boston Scientific unit might sell to Stryker for $1.5b

By Jeffrey McCracken and David Olmos
Bloomberg News / August 18, 2010

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NEW YORK — Stryker Corp., a maker of artificial hips and knees, is in advanced talks to buy a Boston Scientific Corp. unit that produces pain-management devices for about $1.5 billion, three people with knowledge of the transaction said yesterday.

An agreement for the neuromodulation unit might be announced next week, said the people, who declined to be identified because the talks are private. Stryker would probably pay all cash, and the deal may be valued at $1.4 billion to $1.5 billion, they said.

The division is one of two Boston Scientific put up for sale this year. This unit would complement a range of devices Stryker sells to pain management specialists for back problems, said William Plovanic, an analyst with Cannacord Genuity in Evanston, Ill.

“This is a transaction that makes sense,’’ he said. “It will help Stryker leverage its distribution channels. And the neuromodulation business is at least as profitable, if not more so, than Stryker’s overall business.’’

A final agreement has not been reached.

Shares of Boston Scientific, based in Natick, Mass., jumped 33 cents, or 6 percent, to $5.80, the biggest single-day rise in more than 16 months. Stryker, of Kalamazoo, Mich., increased 20 cents, or less than 1 percent, to $46.69.

Boston Scientific is also seeking a buyer for its neurovascular products, which help prevent strokes. A deal for that unit is several weeks away and the business may sell for about $1 billion, the people said.

Stryker’s preferred use for its cash is for acquisitions, chief financial officer Curt Hartman said July 20. The company said Aug. 9 that it obtained a $1 billion senior unsecured credit line, due in August 2013, to replace a previously outstanding $1 billion credit security due in November.

A Boston Scientific spokesman declined to comment. Stryker did not respond to a call.

In the past five years, Stryker made six acquisitions, with an average size of $164.9 million, Bloomberg data show. The largest was the $525 million purchase last year of Ascent Healthcare Solutions Inc., a medical device recycling company.

CEO Raymond Elliott has been trying to turn around Boston Scientific as growth in its biggest markets — cardiac stents used to prop open arteries and devices to treat irregular heartbeats — have had little growth. That effort suffered a setback this year after a recall of defibrillators led to a $1.8 billion write-off.

“They have to do everything they can to optimize growth for the long run,’’ Frederick Wise, an analyst at Leerink Swann & Co., said Aug. 5.