Smith & Nephew Plc dropped on a report that the medical-device manufacturer is in talks with NuVasive Inc. about a deal worth more than $3 billion to gain spinal surgery products.
The stock fell as much as 5.5 percent in London Monday. NuVasive share rose 11 percent to $54.85 at 9:57 a.m. in New York, after a report Friday in the Financial Times on the possible interest from the U.K. company.
Smith & Nephew recently signaled its readiness to pursue a bigger deal, with Chief Executive Officer Namal Nawana saying last week the company wants to play in more areas of medical devices. The market questioned the rationale of buying NuVasive, however. The U.S. company’s revenue growth has been slowing, and a robot for spinal implants it’s racing to introduce this year faces competition from Medtronic Plc and Zimmer Biomet Holdings Inc.
Adding NuVasive “does not offer a strong strategic rationale,” Michael Jungling, a London-based analyst with Morgan Stanley & Co., wrote in a note on Monday, saying the U.S. company would give Smith & Nephew only a second-tier position in the spine market.
The U.K. device maker could have $3 billion to $5 billion of acquisition power, Jungling calculated. Dealmaking is heating up in the orthopedics and medical-technology industry as companies hunt for innovative products to boost growth. Medtronic last month completed the $1.7 billion acquisition of an Israeli company whose robotics-assisted products aid in spine and brain surgeries. Two years ago, Zimmer Biomet spent $1 billion to buy spine-implant maker LDR Holding Corp.
“We do not believe this transaction will occur,” Piper Jaffray Cos. analysts led by Matt O’Brien wrote in a note to investors on Monday. Cantor Fitzgerald LP’s team joined in the skepticism, writing that while Smith & Nephew may eventually be compelled to add a spine business, “there are more attractive acquisition targets.”
More tempting for Smith & Nephew could be Globus Medical Inc., which also makes spine products, or Wright Medical Group NV, according to Jason McGorman and Holly Tyler, analysts at Bloomberg Intelligence.
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