Stryker Said to Be in Talks on Boston Scientific Unit

Aug. 17 (Bloomberg) — Stryker Corp., a maker of artificial hips and knees, is in advanced talks to buy Boston Scientific Corp.’s pain-management device unit for about $1.5 billion, said three people with knowledge of the transaction.

An agreement for the business, also called the neuromodulation unit, may 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, the people said.

The division is one of two businesses Boston Scientific put up for sale earlier 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, Illinois.

“This is a transaction that makes sense,” Plovanic said today in a telephone interview. “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 hasn’t been reached, said the people with knowledge of the deal, noting that talks are frequently scuttled in the late stages.

Boston Scientific, based in Natick, Massachusetts, jumped 33 cents, or 6 percent, to $5.80 at 4:15 p.m. in New York Stock Exchange composite trading, the biggest single-day rise in more than 16 months. Stryker, based in Kalamazoo, Michigan, increased 20 cents, or less than 1 percent, to $46.69.

Second Unit

Boston Scientific is also seeking a buyer for its neurovascular products, which prevent strokes. A deal for that second 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 on a July 20 conference call. 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.

Paul Donovan, a Boston Scientific spokesman, declined to comment. Patrick Anderson, a spokesman for Stryker, didn’t return a call and e-mails seeking comment.

During the last five years, Stryker announced the completion of six acquisitions, with an average size of $164.9 million, according to Bloomberg data. The largest transaction was the $525 million purchase last year of Ascent Healthcare Solutions Inc., a medical device recycling company.

Company Turnaround

Boston Scientific Chief Executive Officer Raymond Elliott has been trying to turn around the company as growth in its biggest markets — cardiac stents used to prop open clogged arteries and devices to treat irregular heartbeats — have had little or no growth.

That effort suffered a setback this year after a monthlong recall of its implanted heart defibrillators forced the company to write off $1.8 billion.

“They have to do everything they can to optimize growth for the long run,” Frederick Wise, a New York-based analyst at Leerink Swann & Co., said in an Aug. 5 telephone interview. “So why not thoughtfully prune the current portfolio and double down in areas where you have the most confidence of your opportunities.”

Job Reductions

Elliott has moved to diversify the company’s product portfolio, to cut expenses in a restructuring that will save up to $250 million and to refinance debt acquired in its 2006 purchase of Guidant Corp. The company said Feb. 10 that it was cutting as many as 1,300 jobs, or about 10 percent of its non- manufacturing workers.

With sales of $285 million in 2009, the neuromodulation business makes products that use electrical pulses to stimulate the spinal cord to treat chronic pain. While the unit had been one of the company’s fastest-growing, sales of $72 million for the second quarter ended June 10 were unchanged from the same period a year earlier.

At a price of $1.5 billion, Stryker would be paying about five times revenue for the pain-management unit, a price that “makes sense,” Plovanic said.

Boston Scientific’s neurovascular unit may fetch as much as $900 million, Derrick Sung, a New York-based analyst with Sanford C. Bernstein in New York, said in an Aug. 4 e-mail.

The neurovascular unit had sales of $348 million in 2009, a 24 percent decrease from $455 million the prior year. The unit makes tiny coils and other surgical devices used in stroke prevention and to treat bleeding disorders in the brain.

–Editors: Andrew Pollack, Bruce Rule

To contact the reporters on this story: Jeffrey McCracken in New York at; David Olmos in San Francisco at

To contact the editor responsible for this story: Reg Gale at


Josh Sandberg

Josh Sandberg is the President of Ortho Spine Partners and Partner for The De Angelis Group. He also serves as Co-Founder and Editor of OrthoSpineNews.

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