Medical Device Daily Associate

Friday saw a flurry of activity on the dealmaking front in the medical device sector, with actions ranging from overwhelming shareholder approval in a blockbuster merger to the closing of several mammoth buys.

Boston Scientific (Natick, Massachusetts) and Guidant (Indianapolis) reported that their respective shareholders have voted “overwhelmingly“ to approve the $27.2 billion combination of the companies at separate special meetings held on Friday, this despite all the recent problems Guidant has had with its cardiac rhythm management products over the past year.

More than 96% of the shares represented at the meeting and more than 73% of the outstanding shares of Boston Scientific were voted in favor of the transaction at the Boston Scientific shareholders meeting.

More than 98% of the shares represented at the meeting and more than 66% of the outstanding shares of Guidant were voted in favor of the transaction at the Guidant shareholders meeting.

“We are pleased and gratified by the strong support we have received from Boston Scientific's and Guidant's shareholders,“ said Boston Scientific president and CEO Jim Tobin. “We are excited about the prospect of creating a global leader in cardiovascular devices, and we are eager to begin working with our colleagues at Guidant to realize the substantial benefits this combination will bring to shareholders, employees, physicians and patients.“

“In Indiana-speak, that's pretty close to unanimous,“ quipped Guidant CEO James Cornelius.

The merger remains subject to customary closing conditions, and Boston Scientific and Guidant expect the transaction to close shortly after U.S. and European authorities complete their antitrust reviews.

To satisfy concerns that the combined company could command too great a share of the market for heart stents, Boston Scientific has agreed to sell a piece of Guidant's business including its drug-coated stents to a third company in a deal valued at $6.4 billion. Abbott Laboratories (Abbott Park, Illinois) has agreed to pay $4.1 billion in cash, and provide a $900 million loan to Boston Scientific and acquire $1.4 billion in Boston Scientific stock.

Boston Scientific said it now expects to close the transaction around the middle of April because of regulatory delays. The FTC has not yet weighed in on the proposal and Europeans regulators said last week pushed up their deadline to make a decision to April 18, though a decision could come sooner than that.

Guidant shareholders stand to gain from this disclosure as they will receive an additional $0.0132 in cash per Guidant share for each day beginning on April 1 through the closing date of the merger, which translates to roughly $4.5 million a day total.

Boston Scientific on Jan. 25 won a nearly two-month bidding war with Johnson & Johnson (New Brunswick, New Jersey) to buy Guidant and its business in the fast-growing market for implantable defibrillators. The company has projected about one-quarter of its sales will come from Guidant's pacemakers and defibrillators.

In the largest completed deal last week, Fresenius Medical Care (Bad Homburg, Germany) and its wholly owned subsidiary, Fresenius Medical Care Holdings (Lexington, Massachusetts), reported the closing of the $3.5 billion acquisition of Renal Care Group (RCG; Nashville, Tennessee).

The closing of the acquisition, which was first disclosed last May (Medical Device Daily, May 5, 2005) follows the completion of the FTC's review of the acquisition and the issuance of a consent order to permit the closing of the acquisition.

To finance the buy, Fresenius said it has entered into and drawn upon a replacement $4.6 billion senior credit facility, with Banc of America Securities and Deutsche Bank Securities serving as joint lead arrangers.

The new senior credit facility consists of a five year $1 billion revolving credit facility, a five year $1.85 billion term loan A facility and a seven year $1.75 billion term loan B facility.

Immediately prior to the acquisition, Florence Acquisition, a subsidiary of Fresenius Medical Care, accepted its previously disclosed tender offer and consent solicitation for $159.69 million in outstanding principal amount of 9% senior subordinated notes of Renal Care Group for a total consideration of $1,097.95 per $1,000 principal amount of notes.

After completion of the divestitures required by the FTC consent order, Fresenius will own and operate about 1,500 dialysis clinics in North America, serving close to 115,000 patients.

Fresenius Medical Care is a provider of products and services for individuals undergoing dialysis because of chronic kidney failure. It is also one of the world's leading providers of dialysis products, such as hemodialysis machines, dialyzers and related disposables.

In another finalized deal, Nuance Communications (Burlington, Massachusetts), a provider of speech and imaging solutions, reported that it has closed its $359 million acquisition of Dictaphone (Stratford, Connecticut), a primary provider of dictation and speech recognition solutions for the healthcare industry.

The company said this acquisition, first disclosed in February (MDD, Feb. 9, 2006), significantly accelerates its strategy to automate manual transcription in healthcare, where an estimated $15 billion is spent worldwide each year.

Net consideration for the transaction was $359 million in cash, after accounting for all closing adjustments. Concurrent with the closing of the acquisition, Nuance also closed a senior secured debt facility from UBS Investment Bank, Credit Suisse, Citigroup and Bank of America. The facility comprises a $355 million term loan and a $75 million revolving credit facility.

Nuance also said that it has established the Dictaphone Healthcare Division. Rob Schwager, former CEO of Dictaphone, will assume the role of division president.

In other dealmaking news:

• dj Orthopedics (San Diego), a company specializing in rehabilitation and regeneration products for the non-operative orthopedic and spine markets, reported that the FTC has completed its antitrust review of the company's planned $290 million acquisition of Aircast (Summit, New Jersey) and will permit the transaction to go forward.

dj Orthopedics signed a definitive agreement in February to purchase Aircast, a maker of orthopedic devices, including ankle bracing products, and vascular systems (MDD, Feb. 28, 2006).

The company said it expects the transaction to close in the near future, subject to certain other customary closing conditions.

• Elekta (Stockholm, Sweden), a developer of radiation oncology and noninvasive neurosurgery solutions, has signed a contract to acquire 80% equity of Beijing Medical Equipment Institute (BMEI; Changping, China) for $20 million in cash, contingent upon approval from the Chinese Ministry of Commerce and other closing conditions.

BMEI is the largest domestic Chinese supplier of radiation therapy systems with an installed base of around 260 units.

BMEI was incorporated in 2000, having existed as a research and production institute since the late 1970s with close ties to many national institutions. The company is a domestic market leader with more than 50% market share in its segment and annual revenue of around SEK 70 million ($9 million).

Elekta said this strategic acquisition will considerably strengthen its position on the fast growing Chinese market for radiation therapy solutions.

“Our acquisition of BMEI should be seen as a part of the overall strategy to increase our presence in China and throughout Asia in terms of sales, marketing, manufacturing and R&D,“ said Tomas Puusepp, president and CEO of Elekta.

As a part of Elekta's long term growth strategy, and in order to complete the plans for developing BMEI into a competitive international supplier of modern equipment for radiation therapy, Elekta said it is planning for further investments into the group's operations in China. The company said it plans to invest up to SEK 50 million during the coming two years in R&D, manufacturing capacity and infrastructure.

Elekta said it intends to integrate its existing technical and software solutions with BMEI equipment and technology to develop competitive and affordable radiation therapy solutions for the expanding need for treatment capacity in China and other emerging markets.