Smith & Nephew to Buy U.S. Medical Device Maker

LONDON - Smith & Nephew said Monday that it has agreed to acquire medical device maker ArthroCare Corporation for about $1.7 billion in cash.

The British medical technology company said it would pay $48.25 a share for ArthroCare, representing a 20 percent premium over the 90-day volume weighted average price of ArthroCare’s shares prior to the announcement.

The deal will allow Smith & Nephew to cross sell products from the two companies across its global footprint and to introduce ArthroCare’s products to additional markets and customers.

“This is a compelling opportunity to add ArthroCare’s technology and highly complementary products to further strengthen our sports medicine business,” said Olivier Bohuon, Smith & Nephew’s chief executive.

“Together, we will be able to generate significant additional revenue from the more comprehensive portfolio, combined sales force and Smith & Nephew’s global footprint.”

The deal is expected to result in transaction expenses and integration costs about $100 million to be incurred over a three-year period.

The transaction is subject to regulatory and shareholder approval and is expected to close in mid-2014.

One Equity Partners, ArthroCare’s largest shareholder with convertible preferred shares equivalent to 17 percent of its equity, has agreed to support the transaction. ArthroCare’s board of directors is recommending that shareholders approve the deal.

The transaction will be financed from cash and Smith & Nephew’s debt facilities, including an existing $1 billion revolving credit facility and a new two-year $1.4 billion term loan facility.

Smith & Nephew also said it will suspended its share buyback program in light of the acquisition.

Based in Austin, Texas, ArthroCare had net sales of $368 million in 2012 and employs about 1,800 people. About two-thirds of its revenue came from sport medicine products in 2012.

In January, ArthroCare agreed to pay $30 million and enter a deferred prosecution agreement to end an inquiry by the United States Department of Justice related to alleged securities fraud by former members of its management.

JPMorgan Chase and Centerview Partners served as the financial advisers to Smith & Nephew, while Piper Jaffray and Goldman Sachs advised ArthroCare. The legal advisers were Davis Polk & Wardwell for Smith & Nephew and Latham & Watkins for ArthroCare.