Why Stryker Is Less Likely to Make a Huge Acquisition

Stryker makes billions available for share repurchases, decreasing chances it will acquire Britain's Smith & Nephew and its $4.4 billion-a-year medical device business.

Chris Newmarker

Smith & Nephew stock took a 5% dive in price this week on the London Stock Exchange after suspected suitor Stryker announced its board had authorized another $2 billion for share repurchases.

Analysts told media outlets that the move by Kalamazoo, MI-based Stryker diminishes the chances that it will indeed acquire the London-based device maker. Stryker now has $2.583 billion available for share repurchases, which along with dividends represent a way for companies in the United Kingdom, United Kingdom, and elsewhere to reward their shareholders.

Acquisitions are still very much part of Stryker's strategy however, CEO Kevin Lobo explained in a news release.

"While M&A activity across the breadth of our product and service offerings will remain the primary focus of our long-term growth strategy, this new authorization recognizes that the strength of our balance sheet is sufficient to enable more significant share repurchases," Lobo said. "We believe that efficiently deploying our balance sheet will enable growth in sales and earnings and maximize shareholder returns."

Just in January, Stryker announced it had acquired CHG Corp. (London, Ontario) for an undisclosed sum. CHG designs and manufactures low-height hospital beds and accessories to prevent patient falls and sells to acute-care facilities across Canada, the United States and the United Kingdom. It was founded in the late 1970s and incorporated as CHG in 2003.

Meanwhile, Smith & Nephew announced Tuesday that it is buying EuroCiencia Colombia, its sole distributor for orthopaedic reconstruction, trauma and sports medicine products in Colombia since 2006. The deal, terms of which were not disclosed, follows similar transactions in Brazil, Turkey and India.

Rumors have been circling for a year that Stryker was eyeing Smith & Nephew for a megamerger. The most recent speculation came in November 2014 as a standby period on a potential bid ended.

Smith & Nephew has not been sitting around waiting for its suitor to pop the question. Since his arrival at the company in 2011, CEO Olivier Bohuon has been redirecting the company's emphasis on hip and knee replacements toward innovations in one of its oldest businesses--wound care.

Stryker's apparent interest in a mega-merger comes amid Zimmer's pending merger with Biomet for $13.4 billion. Combined, Zimmer and Biomet would have enough strength to surpass Stryker in size in the global orthopedics market, knocking Stryker down to third place, according to EvaluateMedTech, a market intelligence firm.

Chris Newmarker is senior editor of Qmed and MPMN. Follow him on Twitter at @newmarker.

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