Wright Medical Group WMGI and Tornier NV recently received approval from Federal Trade Commission (FTC) for their previously announced merger. However, the conditional approval requires Wright Medical to divest Tornier's U.S. rights and assets related to total ankle replacements and total silastic toe joint replacements, which are used to treat arthritis.
The FTC approval is a big relief for both the companies. In June, majority shareholders of the companies (97.7% of shareholders of Wright Medical and 99.4% of Tornier shareholders) sanctioned the deal, which was announced in Oct 2014. Notably, this transaction will create a merged entity worth $3.3 billion.
Wright Medical has traditionally relied on its lower extremities offerings while, Tornier commands expertise in upper extremities. The merger eyes the formation of a company that will possess the most comprehensive upper and lower extremity portfolios in the market.
The Tornier merger has significant long-term prospects for Wright Medical. The transaction, once successfully completed, is expected to create a more diversified and high growth extremities-biologics pure-play with broad reach across three of the fastest growing orthopedic markets (shoulder, foot & ankle and biologics).
The approval comes at an opportune time for Wright Medical. The company recently got FDA approval for its Augment Bone Graft product which allows its sale in the U.S. as an alternative to autograft for ankle and/or hind foot fusion indications. Post approval, the company expects revenues of $10-$12 million from the product over the next six to eight months.
We believe that there will be a significant increase in Wright Medical's profits and a subsequent expansion in margins after the completion of the Tornier merger and the commercialization of Augment Bone Graft.
However, escalating international infrastructure costs will act as a major headwind.
Zacks Rank & Key Picks
Currently, Wright Medical has a Zacks Rank #3 (Hold).