Did Stryker Mako Mistake?

Did Stryker Mako Mistake?

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Stryker ($SYK) plans to pay a pretty penny for robot-assisted surgery outfit Mako ($MAKO), signing up to trade $1.7 billion for the company, an 86% premium to its latest closing price.

Through the deal, Stryker gets Mako’s Rio system–a robot-assisted surgical device used in orthopedic procedures–and the company’s fleet of Restoris implants. Sales and services for Rio systems led Mako to $102.7 million in revenue last year, a 22% jump over 2011.

Stryker, by paying nearly twice Mako’s market cap, clearly has quite a bit of faith in the future of robot-assisted surgery for joint reconstruction, and CEO Kevin Lobo said pairing Mako’s technology with Stryker’s global reach will pay off for patients and shareholders.

“Our combined expertise offers the potential to simplify joint reconstruction procedures, reduce variability and enhance the surgeon and patient experience,” Lobo said in a statement.

But Stryker and its wallet seem a little more optimistic about Rio’s growth than Mako itself: In 2012, the company sold 45 of its systems around the globe, and it’s projecting to sell between 45 and 48 in 2013, too. And even that seems a little rosy considering it only sold 15 in the first half of this year.

Still, Rio-assisted procedures remain on the upswing for Mako, rising 47% last year and 28% in the first half.

For Stryker, Mako’s offerings dovetail with its dominance in reconstructive implants, a business that grew 5.6% to $979 million last quarter. The Kalamazoo, MI, giant posted revenue gains in all three of its units last quarter, but, for the third consecutive period, charges tied to all-metal hip recalls dragged down net income.

Stryker said the buyout would shave about 10 to 12 cents off of annual earnings per share but start to pad net income by year three.

Stryker’s offer is yet to be approved by Mako’s shareholders, and neither company said when it expected to close the deal.

 

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