Struck out!

Two days ago we received more M&A news in the healthcare sector, this time involving one of Vestact's recommended stocks. Stryker were rumoured to be interested in buying UK company Smith & Nephew. Before we go into the details lets just look at the 2 companies quick.


Stryker currently has a market cap of $32bn, Smith and Nephew has a market cap of $15.6bn so its fairly sizeable. What does Smith & Nephew do more importantly? This explanation from their website.


"Smith & Nephew is a global medical technology business dedicated to helping improve people's lives.We have leadership positions in Orthopaedic Reconstruction, Advanced Wound Management, Sports Medicine and Trauma. Orthopaedics Reconstruction - joint replacement systems for knees, hips and shoulders; Advanced Wound Management - wound care treatment and prevention products used to treat hard-to-heal wounds; Sports Medicine - minimally invasive surgery of the joint; Trauma & Extremities - products that help repair broken bones."


Basically they are a very similar business to Stryker and if you combined the two businesses they will hold about one third of the globes hip and knee markets according to this very informative article by the Motley Fool titled Why Stryker Should Buy Smith & Nephew. Having such a big market share is crucial in this industry because you are a compulsory consideration when hospitals decide on their suppliers. As you can see from the article this is even more crucial considering that Strykers biggest competitor in the sector, Zimmer, just secured a deal to buy Biomet which gives them 40% of the knee market.

There are of course other factors involved. The UK are planning big corporate tax cuts next year. This is why we have seen so much attention from US companies for UK businesses. Look at that, business friendly policies actually attracts money! Another interesting UK company law is at play here. Basically if you are questioned about purchasing a UK business and you deny this, you may not make an offer for the business within 6 months. This creates transparency. If you want to buy a company be open about it. Your shareholders deserve to know, the market deserves to know. I agree 100%. Of course this is a simplified explanation of the law. It is more complicated than that.


Stryker have denied doing the deal so they may not make a bid within six months. But in the bigger scheme of things 6 months is nothing and I'd expect this deal is still on the cards. If another company comes in and makes a bid Stryker are allowed to counter that. I must say I like the sound of the deal and so does the market, the stock is up nearly 10% since the deal was announced. We will have to wait and see and keep you updated.