Kevin Lobo and Stryker Corporation’s Board of Directors promised its shareholders $2 billion in the form of a share repurchase program on March 3, 2015.
Stryker’s Buyback Cools Smith & Nephew Speculation
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That’s $2 billion not available to make an offer for Smith & Nephew (S&N).
This buyback is in addition to the $538 million already authorized to buy back shares. Altogether, the total “share repurchasing” authorization stands at $2.582 billion.
Perhaps anticipating questions about less money available for a large deal, Lobo, the company’s chairman and CEO, said, “We remain committed to pursuing a capital allocation strategy that includes acquisitions, dividends and share repurchases…While M&A activity across the breadth of our product and service offerings will remain the primary focus of our long-term growth strategy, this new authorization recognizes that the strength of our balance sheet is sufficient to enable more significant share repurchases. We believe that efficiently deploying our balance sheet will enable growth in sales and earnings and maximize shareholder returns.”
Is Lobo giving up on the home run? Or is he channeling the man who hired him, Stephen MacMillan. MacMillan, the company’s previous chairman, president and CEO, was famous for his baseball metaphors, describing his strategy of hitting lots of singles and doubles. Putting money into shareholders’ pockets is always appreciated and gets polite applause.
What About S&N?
Wall Street analysts quickly responded. Bank of America analyst Bob Hopkins said this “signals large scale M&A is less likely.”
Hopkins said that it continues to be his view that Stryker would not be willing to pay a large premium for S&N. Given Stryker’s return requirements, Hopkins said Stryker would not be able to pay much over 1250 pence (about $37.00) per share for S&N.
He observed that Lobo’s M&A strategy “stretched” for Trauson and MAKO Surgical. “But both of those were smaller, transformational deals…[S&N] would not be considered a transformational deal, in our view.” Hopkins says he likes Stryker being “disciplined around returns when it comes to large deals.” He added that the buyback protects 2015 earnings and Stryker’s 2016 outlook is very strong with MAKO’s total knee and acceleration in the Neurotech business.
S&N Buys Columbian Distributor
On the same day as the repurchase news, S&N CEO Olivier Bohoun announced that his company is acquiring a Columbian distributor named EuroCiencia Colombia (ECC). The Columbian company has been S&N’ sole distributor in Columbia since 2006. ECC employs approximately 150 people. ECC is being acquired from Miami-based GrupoCiencia, an S&N Latin America distributor since 1947.
The terms of the ECC purchase were not disclosed.
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This is a fascinating development. In my practice we've seen similar outcomes with the revised protocol. The key differentiator seems to be patient selection criteria. Has anyone else noticed the correlation with BMI thresholds?
Great point. I'd push back slightly on the conclusion, the sample size in the cited study is too small to draw population-level inferences. That said, the directional signal is compelling and worth a larger RCT.
We implemented a similar approach last year. Early results are promising but we're still gathering 12-month follow-up data. Happy to share our protocol if anyone is interested.
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