(Reuters) – Medical device maker Stryker Corp (SYK.N) said on Monday it would buy smaller rival Wright Medical Group (WMGI.O) for about $4 billion in cash, expanding into the fast-growing business of implants for shoulders and wrists.
Latest in a series of consolidations in the medical device industry, the deal will catapult Stryker to become one of the market leaders in implants for the treatment of bone fractures as well joint replacements.
The 69-year-old Wright Medical, which recorded sales of $836 million last year, also makes implants for foot and ankle.
Wells Fargo analyst Larry Biegelsen said the deal would give Stryker a leading position in the shoulder market, which has been a major gap in the device maker’s orthopedic portfolio.
“Stryker will meaningfully bolster its ability to compete and innovate in the nearly $2 billion global shoulder market,” Chief Executive Officer Kevin Lobo said on a conference call with analysts.
Stryker, however, may have to make some divestments in its ankle implant portfolio to avoid antitrust issues as Wright Medical has a near 70% share of the total ankle replacement market, analyst Biegelsen said.
The company said it was too early to tell if any divestitures were required for the deal to go through.
The deal will make Stryker the top player in the foot and ankle market, dwarfing Johnson & Johnson (JNJ.N), according to Evercore ISI analyst Vijay Kumar.
Stryker will also gain access to Wright Medical’s biologics portfolio including its Augment drug-and-device combination product used for bone repair, and its Cartiva implant for foot and ankle.
Credit Suisse analyst Matt Miksic sees growth of 7% to 9% in the $2.5 billion upper-body joint implants market, and 8% to 10% in the $1.5 billion lower-body joints market.
Stryker’s offer for $30.75 per Wright share represents a premium of 39.7% to the company’s close on Friday. Wright Medical shares were up 30% at $28.64, while Stryker’s shares fell 4.5%.
Including debt, the deal values Wright at about $5.4 billion and is expected to close in the second half of 2020.
Stryker said it still has the capacity for small acquisitions and will continue to look for opportunities to expand its orthopedics unit, which brought in sales of $1.26 billion in the latest quarter.
“We see this deal as a natural fit for Stryker,” Baird analyst Jeff Johnson said, noting the deal carries modest antitrust risks, but should have greater cost savings than management is currently suggesting.
Reporting by Tamara Mathias and Saumya Sibi Joseph in Bengaluru; Editing by Shinjini Ganguli