By Dow Jones Business News, September 25, 2013, 09:05:00 AM EDT
Stryker Corp. ( SYK ) agreed to acquire Mako Surgical Corp. ( MAKO ) and its robotic surgery platform for roughly $1.65
billion, a move aimed at distinguishing Stryker's line of replacement knees and hips in the eyes of its increasingly
cost-conscious hospital customers.
Mako shareholders will receive $30 a share, an 86% premium to its Tuesday closing price. Mako is expected to issue an
additional 4 million shares in connection with the deal.
Mako makes a robotic arm designed to help surgeons more precisely implant replacement knees and hips in a procedure
called Makoplasty. The product is complementary to Stryker's existing line of replacement hip and knee joints and could
appeal to hospitals looking to improve procedural efficiency.
"Our combined expertise offers the potential to simplify joint reconstruction procedures, reduce variability and
enhance the surgeon and patient experience," said Stryker President and Chief Executive Kevin A. Lobo in a statement.
Markets reacted coolly to the deal, however, with some investors questioning the relatively high purchase price, and
Stryker shares fell 1.5% to $69.72 early on Wednesday.
"They're paying a lot--around 13 times this year's sales--that's a pretty big price," said Raj Denhoy, a medical
devices analyst at Jefferies & Co. "Stryker has shown its willingness to pay to expand into new areas."
The price also reflected the lengths medical-device firms will go to jumpstart sales growth in the face of product
commoditization and broad economic pressures that have led health-care providers and insurers to clamp down on costs.
Stryker said the addition of Mako would help it cater to hospital and insurance executives who increasingly want new
devices to help reduce overall costs, a growing focus area for the devices industry.
"Robot-assisted procedures have the potential to aid hospitals, third-party payors and patients as they may reduce
costs by shortening hospital stays and recovery periods and may reduce the amount of rehabilitation and medication,"
said Yin Becker, a Stryker spokeswoman, in an email. "We believe orthopaedic surgical robotics provides an opportunity
to expand and grow significantly from its position today and has the potential to become a game-changing technology
Mako shares nearly doubled from their Tuesday closing price to $29.50. As recently as March 2012, the stock traded as
high as $45. Mako's robots so far haven't seen the uptake many investors had hoped, said Jefferies's Mr. Denhoy. Knee
implants in particular already have a high success rate, and some surgeons have questioned the robot's value. However,
the company's hip-replacement product could see greater adoption as those procedures are thought to be more difficult
In recent years, some patients have put off elective procedures because of the sluggish economy, which has slowed
growth in the market for surgical knee and hip products. Meanwhile, hospitals looking to cut costs have brought lower
prices by reducing their number of suppliers.
In recent quarters, however, there have been signs of stabilization in the joint-reconstruction market. Stryker has
said it expects revenue growth for the overall U.S. hip-and-knee market to rise in the low- to mid-single digit range.
Stryker has sought to hedge against the sluggish orthopedics market by expanding its offerings in surgical tools and
neurovascular products. The company, whose shares are up 26.2% year-to-date, is also recovering from a series of
problems related to some of its devices that have resulted in some product recalls.
The acquisition is expected to reduce Stryker's adjusted per-share earnings by about 10 cents to 12 cents in the first
full year after it closes, be neutral in the second year and add to the bottom line after that.
A spokesperson for Mako wasn't immediately available to provide further comment.
Write to Joseph Walker at firstname.lastname@example.org
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