Is Medtronic Next on Smith & Nephew's Dance Card?

While medtech industry watchers were busy last week watching Stryker's flirtation with Smith & Nephew, the gossips around the punchbowl are now whispering that Medtronic might also have an interest.

Although the Minneapolis-based Medtronic, whose original core competency was in the cardiac rhythm management space, and London's Smith & Nephew, whose specialty is hip and knee replacements, might at first blush appear to be an odd couple, this could be one of those matches where their mutual interests make for a case of opposites attract.

While Medtronic and Smith & Nephew have both thus far declined to comment, Bloomberg has reported that Smith & Nephew is aware of Medtronic's interest, as are investment banks. Bloomberg sourced the story off two people claiming to be in the know but "asking not to be named discussing a private matter."

Bloomberg's unnamed sources further say that "Medtronic's preparations for a bid are at an early stage and no offer is imminent." But one of those sources reportedly said that Medtronic is a more serious bidder for Smith & Nephew than Stryker.

Still, Medtronic CEO Omar Ishrak told Bloomberg that the company is looking to broaden its offerings in its three key areas: heart, muscle and skeleton ,and diabetes products. "We intend to fill these areas out and we want to globalize," Ishrak said.

And the financial types say that Medtronic could benefit from what is known as a tax inversion. In this scenario, Medtronic could use Smith & Nephew's corporate shell to move its legal residence to the U.K., thus taking advantage of the 21% corporate tax rate there, as opposed to 35% in the United States.

Ishrak has said he wouldn't rule out a tax-inversion deal.

"Strategically, we do have this current problem that we have a lot of cash outside the (United States)," he told Bloomberg in a May 20 telephone interview. "We encourage some kind of U.S. tax reform that allows us access to that cash in a more reasonable way."

Stephen Levy is a contributor to Qmed and MPMN.