Shares of U.K.-based medical device company Smith & Nephew plc (SNN) rose 4.3% to close at $36.12 yesterday, following a speculation that the company's U.S. rival Stryker Corporation (SYK) may consider a bid of $15 billion for acquiring the former.
Earlier, in May 2014, a similar acquisition rumor had come to the fore. However, the consideration did not go any further as Stryker, at that time, was reportedly not prepared to make an immediate bid for Smith & Nephew.
Moreover, the imposition of a six-month cooling off period imposed by U.K.'s takeover rules reportedly impeded any movement on Stryker's part with respect to its buyout of Smith & Nephew. But now that the cooling off period will be over by this Friday, Stryker will be in a position to make an offer for this acquisition. However, a word of confirmation on the same can only be expected after the restriction period ends on Nov 28.
Some analysts believe the reason behind this decision of Stryker lies in the company's interest to gain from the lower tax rate that prevails in U.K., despite the current U.S. government trying hard to restrict this tax inversion action. In fact, this has become a common trend, of late. Several U.S.-based companies are acquiring offshore firms in Europe and other nations which provide a more lenient tax regime, through transfer pricing mechanism.
This same tax inversion strategy had motivated U.S.-based Steris Corp. (STE) to make an offer to buy U.K.-based Synergy Health. Medical device giant Medtronic, Inc. (MDT) is also in advanced talks to buy its Ireland-based rival Covidien plc for the same reason.
However, this tax inversion is possibly not the only reason fueling this acquisition decision, as according to The Telegraph, Stryker's effective tax rate stands lower than the tax rate of Smith & Nephew. The real benefit that Stryker will obtain from this acquisition will be a lower corporation tax that prevails in the Europe.
According to certain analysts, this merger will result in reduced costs for the combined company at a time when the healthcare industry is already facing severe pricing pressure.
We believe Stryker, with its established base as a large medical device corporation in the U.S., will be able to reasonably expand its market share further in the European subcontinent, if it finally takes over Smith & Nephew.
Zacks Rank
Smith & Nephew, Medtronic and Stryker all retains a Zacks Rank #3 (Hold), while Steris holds a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment