Smith & Nephew has agreed to buy ArthroCare for $48.25 per ArthroCare share in cash, a total consideration of approximately $1.7bn and an enterprise value of $1.5bn, as part of its strategy to strengthen its global sports medicine business.
The acquisition will be subject to customary conditions, including a vote of ArthroCare’s shareholders and governmental clearances.
Pending the satisfaction of such customary conditions, Smith & Nephew expects to close the deal in mid-2014.
The deal is expected to provide new growth opportunities for its ear, nose and throat business, enable to expand Smith & Nephew’s product range by using its minimally invasive technologies, help introduce ArthroCare’s products to new customers and markets, as well as generate additional revenue opportunities from a combined global footprint and channel presence.
In addition, Smith & Nephew expects the ArthroCare’s shoulder anchor innovation to complement its strength in knee repair, providing the company with an extensive, integrated portfolio in joint repair.
Smith & Nephew said this deal would generate substantial cost and revenue savings, as well as enhance its new product pipeline and R&D activities.
The company expects the acquisition to boost its annual profit by around $85m in the third full year after the purchase is complete.
Other opportunities include cross-selling in established sectors, expanding into new and emerging markets and maximising efficiencies across the combined business.
Smith & Nephew CEO Olivier Bohuon said: "Together, we will be able to generate significant additional revenue from the more comprehensive portfolio, combined sales force and Smith & Nephew’s global footprint.
"With this transaction, we are again accelerating our strategy to rebalance Smith & Nephew towards higher growth."
The purchase price of $48.25 per ArthroCare share will be financed from Smith & Nephew’s debt facilities and cash balances, including the existing $1bn revolving credit facility and a new two-year $1.4bn term loan underwritten by Barclays and JP Morgan.
ArthroCare president and CEO David Fitzgerald said: "The board believes that this transaction is in the best interest of our shareholders."
JP Morgan and Centerview Partners are acting as financial advisors for Smith & Nephew, while Piper Jaffray and Goldman Sachs Group are acting as financial advisors for ArthroCare.
Headquartered in Austin, Texas, US, ArthroCare has approximately 1,800 employees, including a salesforce of around 400.
In January, ArthroCare and the US Department of Justice (DOJ) entered into a Deferred Prosecution Agreement resolving the ongoing investigation by the DOJ into events under a previous management team. The investigation was first announced in December 2008.
Image: Smith and Nephew Factory from the A63, Kingston Upon Hull, East Riding of Yorkshire, UK. Photo: courtesy of Mtaylor848.