Shares in Smith & Nephew spiked by almost 10pc on Wednesday following reports that its US rival Stryker is planning a £13bn takeover bid.
Stryker, which makes surgical implants, is looking at offering a 30pc premium to Smith & Nephew’s share price, which rose to £11.80 on Wednesday morning, valuing the company at around £10.6bn. THe stock closed up 7.7pc at £11.73 on Wednesday.
An approach could be made within weeks, Bloomberg reported.
In May, Stryker boss Kevin Lobo admitted that he was in the early stages of considering an acquisition of Smith & Nephew but was not prepared to make an immediate bid. The statement put Stryker in a “cooling-off” period that prevented it from approaching the FTSE 100 company until November.
Stryker has held discussions on financing the deal, and already considered the competition issues of a tie-up, according to Bloomberg citing unnamed sources.
The UK’s takeover rules state that when a potential bidder is in a cool-off period it can still actively consider an offer but it is banned from “taking any steps in connection with a possible offer for the [target] company where knowledge of the possible offer might be extended outside those who need to know in the potential offeror and its immediate advisers”. As a result, it is widely accepted that talks must be kept to only dedicated advisers in order to keep leaks to a minimum.
The Michigan-based company is reportedly not weighing a so-called inversion deal – an acquisition which involves a US company moving its headquarters outside the country to escape high corporation tax rates at home.
While inversions surged in popularity in the early part of this year, a US Treasury clampdown in September scuppered a number of high profile deals, including AbbVie’s abandoned tie-up with Shire, and stopped other potential deals in their tracks.
Analysts are divided over the strategic logic of a Stryker and Smith & Nephew tie-up. Morgan Stanley analysts noted that a merger would slow the US company’s annual growth, which currently stands at around 5pc compared with Smith & Nephew’s 3pc.
Analysts at Bernstein have, however, put the chances of a merger at more than a third, saying a tie-up could help cut costs at a time when the industry is facing intense pricing pressure. They also said Stryker could be keen for a merger to help it compete with the scale of the combined Zimmer and Biomet, two major US medical technology companies who announced plans to merge earlier this year.
By Andrew Trotman, Denise Roland and Ashley Armstrong
