Smith & Nephew To Buy ArthroCare For $1.7 Bln To Expand In Sports Medicine

(RTTNews) - UK-based Medical technology business Smith & Nephew Plc. (SN.L, SNN) Monday said it executed a definitive agreement to acquire medical device company ArthroCare Corp. (ARTC, ARTC.PK) for $48.25 per share in cash, for a total consideration of about $1.7 billion and an enterprise value of $1.5 billion. The deal is expected to be accretive to adjusted earnings per share of Smith & Nephew from first full year.

The deal will help Smith & Nephew strengthen its sports medicine business. The company's sports medicine business operates as two franchises - Sports Medicine Joint Repair and Arthroscopic Enabling Technologies. It is part of the Advanced Surgical Devices division.

Smith & Nephew said the combination of ArthroCare's latest generation of radio frequency technology and Smith & Nephew's strong mechanical blade portfolio gives customers greater choice. In joint repair, ArthroCare's shoulder anchor innovation complements Smith & Nephew's strength in knee repair.

The combination will have additional revenue opportunities from combined global footprint and channel presence. Further, Smith & Nephew said the adjacent ENT business provides new growth opportunities.

The purchase price represents a 20 percent premium over the 90-day volume weighted average price of ArthroCare's shares before this announcement.

One Equity Partners, the largest shareholder of ArthroCare with convertible preferred shares equivalent to 17 percent of the equity, has committed to vote its shares in support of the transaction. The Board of ArthroCare has recommended the transaction.

Smith & Nephew expects to close the transaction in the middle of 2014.

The company sees substantial cost and revenue synergies that are expected to add $85 million to annual trading profit in the third full year. Opportunities include cross-selling in established markets, expanding into new and emerging markets and maximising efficiencies across the combined business.

One-off transaction expenses and integration costs are expected to be around $100 million incurred over three years.

The offer price will be financed from Smith & Nephew's debt facilities and cash balances, including the existing $1 billion revolving credit facility and a new two-year $1.4 billion term loan facility. The term loan has been underwritten by Barclays and J.P. Morgan.

Smith & Nephew has completed $226 million of its $300 million share buy-back program. In the light of this acquisition, the company has suspended this program.

Olivier Bohuon, CEO of Smith & Nephew, said, "This is a compelling opportunity to add ArthroCare's technology and highly complementary products to further strengthen our sports medicine business. Together, we will be able to generate significant additional revenue from the more comprehensive portfolio, combined sales force and Smith & Nephew's global footprint."

SN.L is currently up 1.3 percent at 887 pence.