2nd UPDATE: Stryker To Buy Ascent Healthcare For $525 Million
By Jon Kamp, Of DOW JONES NEWSWIRES
(Adds analysts' comments in final three graphs; Updates share price.)
Stryker Corp. (SYK) announced plans Monday to acquire privately held Ascent
Healthcare Solutions Inc. for $525 million, giving the medical-products maker
the market leader in reprocessing and remanufacturing of medical devices in the
U.S.
Ascent, formed through the 2005 merger of Vanguard Medical Concepts and
Alliance Medical Corp., provides its services to 1,800 hospitals. Its 2008
revenue was more than $100 million. The deal, slated to close by year's end,
isn't expected to affect Stryker's bottom line next year but should boost per-
share earnings thereafter.
The deal represents the second-largest acquisition ever for Stryker, following
the $1.65 billion purchase of orthopedic device maker Howmedica from Pfizer Inc.
(PFE) in 1998. It's also Stryker's biggest purchase during the five-year tenure
of Chief Executive Stephen P. MacMillan.
Stryker has long talked about using some of its big cash stockpile on
purchases, but hadn't spent much prior to this deal. The company has been
careful not to overpay and has also been wary of smaller companies that appear
to partially generate rapid growth through sales and marketing practices that
don't comply with Stryker's, MacMillan said in a recent interview.
In Ascent, Stryker gains a business for repurposing used medical devices,
which can save hospitals money while cutting down on waste. Ascent offers
products in 35 different medical-device categories including cardiovascular and
orthopedic products. It will be added to Stryker's business for hospital and
surgical products, known as MedSurg, which has struggled due to a slowdown in
hospital spending sparked by the recession. Stryker's other big business unit
sells replacement orthopedic joints.
"Conducted in accordance with [Food and Drug Administration] regulations,
reprocessing and remanufacturing is one of the most impactful programs in use at
hospitals, allowing for significant cost savings to the health care system,"
MacMillan said in a statement.
Wells Fargo analyst Michael Matson noted that pressure on hospital costs is
driving growth of product reprocessing. The Ascent deal gives Stryker the
opportunity to reprocess competitors' products, but Stryker could also see sales
of reprocessed products cannibalize sales of its own new products, which Matson
suspects have higher profit margins.
Morgan Stanley analyst David Lewis called Ascent an expensive asset, but "
strategically sound and well positioned if cost containment continues to be an
increasing focus."
Stryker shares recently traded up 0.8% to $50.07.
RBC Capital Markets upgraded its rating on Stryker to outperform from sector
perform on Monday while citing improvements in the markets for orthopedic and
MedSurg products.
-By Jon Kamp, Dow Jones Newswires; 617-654-6728; jon.kamp@dowjones.com
(Kevin Kingsbury contributed to this article.)
(END) Dow Jones Newswires
11-30-091451ET
Copyright (c) 2009 Dow Jones & Company, Inc.
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