Recently, the medical device players have shifted focus towards
emerging markets, especially China.
), in line with this strategy, has decided to acquire
China Kanghui Holdings
) for $816 million in cash. After taking into account Kanghui's
cash balance, the transaction value came in at $755 million. This
deal would strengthen Medtronic's orthopedic franchise in the fast
growing Chinese market by bringing in trauma, spine and joint
The transaction, expected to close in the next few months, is
subject to certain approvals. Medtronic expects that the deal
would not impact its earnings in both fiscal 2013 and 2014 as the
company intends to offset any dilutive impact of the
The proposed acquisition of China Kanghui is in sync with
Medtronic's focus on globalization due to the opportunity rife in
international destinations, especially in the emerging markets.
Emerging markets remain a key focus area for the company.
Management is targeting to achieve 20% of its revenues from the
emerging markets by fiscal 2015−16 that will result in additional
300-500 basis points of revenue growth.
Healthcare, which is increasingly becoming a government priority
in many emerging countries, along with a rise in economic standards
in these regions, speaks for the immense potential for growth. It
is expected that within the next decade, China will be the biggest
health care market in the world, outpacing the US. However,
revenues from this region during the last reported quarter
increased 14% (at constant currency) but missed the company's
targeted growth rate of 20%.
Meanwhile, in August 2012, Medtronic inaugurated its Innovation
Center in Shanghai, the first outside the US and Europe, to enhance
local product research and development in that region. This center
will collaborate with the global teams, local physicians,
universities and research institutes to provide solutions for
patients. Based on these initiatives, we expect this region to play
a significant role in the growth path of the company.
Medtronic is focusing on the emerging markets primarily to
offset the hindrances it faces in two of its largest markets - US
defibrillators and US spinal implants. We are also encouraged by
the company's portfolio expansion strategies though their
contributions are not significant enough to drive top-line growth
yet. However, unfavorable currency and macroeconomic uncertainties
in Southern Europe adversely affected sales during the first
quarter. These headwinds have also affected the company's peers
St Jude Medical
We have a 'Neutral' recommendation on Medtronic. The stock
retains a Zacks #3 Rank (Hold) in the short term.
BOSTON SCIENTIF (BSX): Free Stock Analysis
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