Smith and Nephew merge with Stryker?
BY EDITOR, NOVEMBER 5, 2003
Earlier today, Reuters published a short story recounting an occasional rumor that Smith & Nephew (SNN) and Stryker (SYK) are in merger discussions. It is a rumor and may very well prove false, but the logic is strong.
Here's our take:
Anti-trust issues will not be as big a deal as Wall Street's analysts think. In the large joint market, the combination of SNN and Stryker nets a 28-29% market share, still under Zimmer's 30% share. We note that Zimmer sailed through the anti-trust gauntlet without much effort. Particularly under a Bush administration, we would not see much problem for SNN and Stryker.
The combined companies have an annual cash flow in excess of $700 million, before synergies.
Smith and Nephew plus Stryker combines the leading alternate bearing surface knee (Oxynium) with the leading alternate bearing surface hip (ceramic on ceramic). It a heck of a marketing one-two punch.
And, with Zimmer merging with Centerpulse and capturing the leading share in large joints, a combination of Stryker and Smith and Nephew is a logical strategic response from both companies. We think it will be positive for both company's shareholders.
The combined entity would have annual sales in excess of $4.8 billion and cash flows, before synergies, of $700 million.
Smith and Nephew's market cap is $7.3 billion so a purchase would be, we estimate, around $9 billion. Stryker's market cap is $16 billion.
