Medtronic to pay $816 million for Chinese orthopedic implant maker (Twin Cities)
Medtronic is paying $816 million to acquire a Chinese manufacturer of orthopedic devices in a deal that’s meant to expand the Fridley-based company’s reach in emerging markets.
Medtronic will pay $30.75 per share for China Kanghui Holdings in a transaction with a value of about $755 million after factoring Kanghui’s cash, the companies announced Thursday, Sept. 27.
A growing share of Medtronic sales is coming from outside the United States. Chief Executive Omar Ishrak made boosting sales in emerging markets such as China and India a priority upon taking the top job at Medtronic in June 2011.
“This agreement is directly aligned with our corporate strategies of globalization and economic value,” Ishrak said in a statement. “Kanghui represents a significant investment in China, accelerating Medtronic’s overall globalization strategy with an established value segment distribution network and strong (research and development) and operational capabilities.”
Founded in 1997, Kanghui reported net revenue of $52 million in 2011, nearly a 35 percent increase over company sales during 2010.
Analysts estimate the Chinese company’s revenue will grow to $64 million this year followed by a 23 percent increase in 2013, wrote Joanne Wuensch, an analyst with BMO Capital Markets, in a note to investors.
It’s unclear, Wuensch wrote, what the new deal will mean for Medtronic’s existing joint venture with Shandong Weigao Group Medical Polymer Co. Ltd., another Chinese maker of orthopedic devices. In December 2007, Medtronic announced a $221 million investment in the Weigao joint venture, which Wuensch said is in place until January 2014.
Wuensch wrote of the Kanghui deal: “This move is in line with (Medtronic’s) mantra of tuck-in acquisitions, with a focus on emerging markets, and driving products for both the premium and lower-end segments of the market.”
The deal is Medtronic’s first acquisition in China, the company said, and will bring a fully integrated business with local manufacturing as well as research-and-development operations in China. Kanghui will be maintained as a separate business unit led by its current management; it also will be the first Medtronic business unit to be headquartered outside the United States.
During Medtronic’s most recent quarter ending in July, the company posted emerging market revenue of $438 million, a 14 percent increase over the same period last year. The sum represented about 11 percent of Medtronic’s overall revenue in the quarter of $4 billion.
The emerging market category at Medtronic includes sales from countries in Central and Eastern Europe, the Middle East, Africa, Latin America and Asia (excluding Japan and Korea).
Medtronic shares were treading at $43.15 Friday afternoon, down 33 cents.
Christopher Snowbeck can be reached at 651-228-5479. Follow him at twitter.com/chrissnowbeck.