St. Jude Medical Inc. will pay about $660 million in stock and cash for Ventritex Inc. of Sunnyvale, Calif., and other acquisitions, expanding its share of the market for devices that treat irregular heartbeats.
St. Jude, the No. 1 maker of mechanical heart valves, will pay about $505 million in stock for Ventritex, a maker of defibrillators, which slow a patient's heartbeat.
The St. Paul, Minn.-based company will also acquire Pacific Dunlop Ltd.'s Teletronics and Medtel units for $130 million in cash and pay $25 million for intellectual property rights from Sulzer's Intermedics.
The moves, which put St. Jude in a market with an annual growth rate of 20% to 25%, are part of its plan to expand beyond heart valves--a maturing business that still generates lots of cash.
"St. Jude will have its hands full trying to make this work," said Michael Weinstein, a J.P. Morgan Securities analyst. "Assuming they can, it will raise the company's long-term growth rate."
In the Ventritex acquisition, that company's stockholders will receive 0.6 share of St. Jude Medical for each of their shares. The ratio isn't dependent on St. Jude's stock price. The transaction values Ventritex at $505 million based on Tuesday's closing prices.
Ventritex will purchase as many as 200,000 of its own shares before the transaction closes, which is expected later this year or in early 1997. President and Chief Executive Frank Fischer will remain with the company.
Ventritex shares rose .9375 to $21.5625 on Nasdaq. St. Jude fell $1.25 to $37.375, also on Nasdaq.
Ventritex has lost the technological lead it once had in the defibrillator market. Rivals Medtronic and Guidant Corp. beat it to market with defibrillators small enough to be implanted on the chest instead of the abdomen.
Such implants reduce the time needed for surgery to implant the device as well as recovery time. Both Medtronic and Guidant have gained market share at Ventritex's expense as a result.
To be sure, St. Jude's acquisition of Ventritex could change that trend, analysts said.
"This will make Ventritex a more powerful contender," said Rachael Scherer, a Dain Bosworth analyst.
Analysts said they expect the acquisition to dilute St. Jude's earnings next year and possibly in 1998. The company declined to comment on any earnings impact.
"The magnitude depends on how fast things happen," said Steve Wilson, St. Jude's chief financial officer. "Both Ventritex and Teletronics are losing money but are well-positioned and poised to do better. The question is how far they bounce back and how soon."
Teletronics ran into problems last year, when two types of pacemaker wires broke inside the chests of several heart patients, prompting several lawsuits. In its purchase, St. Jude didn't take on the legal liabilities associated with those lead wires.
Teletronics is close to getting government approval for several new pacemaker products that are based on a different type of sensor than existing Pacesetter products, St. Jude's Wilson said. The products are rate-responsive, which would allow a heart patient to exercise and briefly raise his heart rate without prompting a response from the pacemaker.
The Teletronics agreement also includes a provision for additional payments of as much as $40 million to Pacific Dunlop over six years if certain sales milestones are met.
St. Jude will also acquire some intellectual property rights from Intermedics Inc., a Freeport, Texas, unit of SulzerMedica Inc., for $25 million. That agreement includes the settlement of disputes between Intermedics and Ventritex.
Wilson said the company is confident that the agreements mean St. Jude won't be sued by Medtronic or Guidant for patent violations.
"The intellectual property was key," he said. "We have taken steps to ensure we will be in all markets."