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Medtronic Buying Chinese Company For $816M

Fri, 09/28/2012 - 11:31am

MINNEAPOLIS (AP) — Medtronic Inc. will buy China Kanghui Holdings for $816 million, helping it expand in one of the world's fastest growing medical device markets.

Medtronic, the world's largest maker of medical devices, is paying $30.75 for each share of Kanghui Holdings, a 22 percent premium to the stock's closing price Thursday. Net of Kangui's cash, the transaction is valued at $755 million.

China Kanghui Holdings makes orthopedics devices, specializing in trauma, spine and joint reconstruction. The company earned net income of $18.9 million in 2011 as revenue rose 35 percent to 327 million yuan ($51.4 million). Medtronic said late Thursday the company has a large product portfolio, strong research and development, and manufacturing operations, and a large distribution network.

U.S.-listed shares of China Kanghui Holdings surpassed their 52-week high in morning trading, jumping $5.39, or 21.5 percent, to $30.50. The American depository shares have traded between $12.92 and $27.47 in the last 12 months.

Mizuho Securities analyst Michael Matson said the purchase is consistent with Medtronic's strategy of acquisitions in emerging markets.

Last month the Minneapolis-based company announced the opening of an "Innovation Center" in Shanghai, its first one outside of the U.S. and Europe, to support research and development in China.

"While we think Medtronic is paying a high price, it may be justified by Kanghui Holdings' strong revenue growth, high margins, and the vast potential of the Chinese market," he wrote.

On the other hand, he added, "China Kanghui Holdings' small size means it won't really move the growth needle for Medtronic anytime soon."

Medtronic expects the transaction will be neutral to its net income in 2013 and 2014.

Matson said Medtronic sells about $100 million in medical devices through a joint venture with another Chinese company, and it's not clear what will happen to that joint venture in the wake of this deal, which is scheduled to close in the next few months.

Shares of Medtronic slipped 56 cents to $42.92 in morning trading.

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