Tyco Agrees to Buy U.S. Surgical

Tyco International Ltd. plans to buy U.S. Surgical Corp. for $3.3 billion in a bid to enable the companies to compete more effectively against much bigger rivals and boost their business of supplying medical products to hospitals.

U.S. Surgical, which primarily makes products for closing surgical wounds and performing minimally invasive surgery, would operate as a unit of Tyco’s disposable and specialty medical products group. U.S. Surgical founder Leon Hirsch would remain chairman and chief executive.

The deal, announced Monday, ends the widespread speculation of a takeover that had recently boosted the stock price of Norwalk, Conn.-based U.S. Surgical, which has seen its profit falter because of growing competition from larger rivals in the surgical sutures business.

An undisclosed amount of job cuts are likely at both companies because of overlap, said J. Brad McGee, senior vice president of Hamilton, Bermuda-based Tyco, which is best known for its fire-protection and electronic security systems. U.S. Surgical has 6,500 employees worldwide and Tyco has 85,000.

Analysts have said a deal between the two would make sense, especially since Tyco has been beefing up its medical products business. It recently entered the surgical suture business by buying American Home Products Corp.’s Sherwood-Davis & Geck unit for $1.77 billion.

Tyco’s chairman and chief executive, L. Dennis Kozlowski, said U.S. surgical would be a powerful complement to Sherwood-Davis and “an excellent strategic fit with our disposable medical products group.” U.S. Surgical would be one of about half a dozen units in that group.

The acquisition would help Tyco squeeze more efficiency from U.S. Surgical’s operations, especially in distributing products to hospitals worldwide. Besides giving Tyco great global reach, the deal would broaden its product line to hospitals, Kozlowski said.

“The merger makes solid business sense, provides Tyco with tremendous cost-saving synergies, and gives U.S. Surgical the opportunity to leverage its marketing and technical expertise as part of the Tyco family,” Hirsch said.

U.S. Surgical has been losing market share to companies such as Johnson & Johnson’s Ethicon Inc. subsidiary, which already has an 80% share of the surgical suture market.

U.S. Surgical, which has annual revenue of about $1.4 billion, has also made several recent acquisitions as part of a corporate strategy to grow through diversifying its products.

Under the deal, Tyco would buy U.S. Surgical for $42.50 per share, or $3.3 billion. The deal is based on Tyco’s closing share price Friday of $55.88 on the New York Stock Exchange. The price is an 8% premium above U.S. Surgical’s close Friday of $39.25.

The deal, expected to close in late September, would allow Tyco to generate about $4.5 billion in revenue from its medical products operations. Tyco has annual revenue of $13 billion.