Wright Medical filings, report hint of rivals to Stryker's $5.4B acquisition

Dive Brief:

Recent filings by Wright Medical with the U.S. Securities and Exchange Commission indicates that as many as five other companies besides Stryker expressed interest in a transaction with Wright.
On Thursday, StreetInsider.com cited a report that Smith & Nephew is interested in submitting a higher bid for Wright Medical. Smith & Nephew, Stryker and Wright Medical each declined to comment on the matter.
Stryker announced Nov. 4 it would offer $30.75 per share to acquire Wright Medical, a deal with a total value of roughly $5.4 billion. Terminating the deal would come with a $150 million fee, according to regulatory filings.

Dive Insight:

Before Stryker announced on Nov. 4 its bid for Wright, Wall Street analysts speculated Smith & Nephew, Stryker and Johnson & Johnson could all be logical buyers, following a Bloomberg report that Wright was shopping for buyers.

Also before Stryker made its move, Needham & Co. analysts said J&J is "overexposed to orthopedics" and "likely has other more attractive M&A opportunities available." They also downplayed the likelihood of Stryker or Zimmer Biomet buying Wright given potential antitrust hangups and noted Medtronic "could be a wildcard but we're doubtful management has the appetite for this size of acquisition given the CEO transition plan in place."

Smith & Nephew, on the other hand, "makes the most strategic sense in our view given little or no anti-trust issues in our view." Smith & Nephew and Wright also both have operations in Memphis, Tennessee.

A Dec. 17 StreetInsider.com story also cited sources that Smith & Nephew was a "serious bidder" for Wright.

Around the time Wright was negotiating with potential buyers, Smith & Nephew was undergoing a CEO transition. Roland Diggelmann took up the role Nov. 1 after Namal Nawana stepped down after only about a year and a half in the job. Smith & Nephew was also reportedly weighing a more than $3 billion acquisition of NuVasive around February of this year, according to Financial Times.

Analysts at RBC Capital Markets said in a Nov. 4 note preceding Stryker's announcement that while Smith & Nephew "represents the best fit" for Wright, the fact that Smith & Nephew just announced a leadership change "would be a bold acquisition so early on for the new CEO."

In filings with the U.S. Securities and Exchange Commission last week, Stryker and Wright revealed the companies chief executives initiated dealmaking conversations March 24 this year during a game of golf.

Following Wright's earnings report Aug. 7, which cited problems with salesforce retention, the company's stock dropped more than 21%. In an Aug. 12 meeting between Stryker and Wright, Stryker CEO Kevin Lobo reportedly raised concerns about Wright's financial performance and projections.

On. Oct. 24, Stryker reportedly submitted a written proposal to acquire Wright for $30.25 per share in cash, which Palmisano countered with a proposal that Stryker offer $32.00. Ultimately, it was negotiated to $30.75.

Wright Medical listed in its filing that negotiations the week prior to the announcement centered around Wright's ability to accept a superior proposal, the size of the termination fee, and Stryker’s commitment to divest assets in order to obtain regulatory clearances. Some analysts noted following Stryker's acquisition announcement that the combination of the companies' foot and ankle businesses could prompt antitrust concerns from regulators.

As close to Stryker's announcement as the Saturday before, Nov. 2, a different medical device company that had contacted Wright "to discuss a potential merger of equals" offered a non-binding proposal to acquire Wright for $30.00 per share, 40% of which would be cash and 60% of which would be equity in the unnamed company, according to the Wright filing.

That company apparently "intended to issue debt and new equity to fund the cash portion of the purchase price but had not yet secured commitments from potential financing sources." Wright was also aware of a different company interested in a deal, but that wouldn't be able to pursue a transaction until February 2020.

After a meeting discussing the matters Nov. 3, Wright Medical's board unanimously voted to approve the proposed deal with Stryker.

Since Stryker announced its plans to acquire, Wright came out with third-quarter results showing its revenues grew but decelerated. Net sales during the quarter rose 9.4% to $212.4 million, compared to $194.1 million last year. Its Cartiva sales were about $4.8 million in the U.S. and $0.9 million internationally, compared to about $8 million in the second quarter.