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Medtronic to Buy Maker of Spine Implants for $3.6 Billion

Health: Deal would allow the pacemaker company to expand a product line for treating the nervous system.

November 03, 1998| From Bloomberg News

MINNEAPOLIS — Medtronic Inc. said Monday that it has agreed to buy Sofamor Danek Group Inc., the biggest maker of spinal implants, for $3.6 billion in stock to double its sales of devices to treat nervous-system disorders and injuries.

Medtronic will issue $115 in stock for each Sofamor share, or 13% more than Sofamor's closing price Friday of $101.63. Sofamor jumped $8.50 on Monday to $110.13, and shares of Medtronic, the biggest pacemaker company, gained $1.56 to $66.56, both on the New York Stock Exchange.

Memphis-based Sofamor makes rods, screws and plates implanted to stabilize the spine, supplying a market that's expanding by 25% a year and could reach $1.2 billion in sales by 2001, analysts estimate.

News of the deal comes as Medtronic rival Johnson & Johnson nears completion of its purchase of Sofamor's chief rival, DePuy Inc. Medtronic is expanding as sales growth slows in its pacemaker and defibrillator implant lines.

Sofamor's implants will be combined with those of the Medtronic division whose devices deliver electrical stimulation to fight pain and tremors and that makes implantable pumps that deliver drugs. Sales of such devices are rising 20% to 25% a year, compared with 4% to 6% for pacemakers.

There won't be much overlap between the products made by Minneapolis-based Medtronic and Sofamor, analysts said.

Medtronic, which had revenue of $2.6 billion last year, expects the acquisition to start adding to earnings in fiscal 2000. Sofamor Danek expects to have revenue of $400 million this year.

Sofamor has been under pressure as it faces more than 2,000 lawsuits over injuries linked to screws it makes for treating spinal injury. Medtronic said it has researched the cases and plans to help Sofamor Danek counter them. Medtronic's general counsel told analysts in a conference call that he considers the cases manageable and defendable.

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