Medtronic to acquire Kyphon

By JOSHUA FREED, AP Business Writer 31 July 2007

MINNEAPOLIS - Medical device maker Medtronic moved to jump-start its spinal business on Friday, announcing a $3.9 billion purchase of spinal implant maker Kyphon.

Directors of both companies unanimously approved the deal but they still need the nod from Kyphon shareholders and antitrust regulators in the U.S. and Europe.

Kyphon and Medtronic have focused on different parts of the spine. Medtronic has focused on spinal surgery treatments aimed at younger patients with scoliosis and degenerative disc disease in the cervical and lumbar regions of the spine. Kyphon's focus has been on older patients who have spinal compression fractures and spinal stenosis.

"We believe there is a compelling strategic fit," she wrote. "We expect Kyphon to help Medtronic consolidate its No. 1 position in the spine market."

Medtronic said it would pay for Sunnyvale, Calif.-based Kyphon with a mix of cash and new debt. Chief Financial Officer Gary Ellis said the company has about $6 billion in cash.

Rick Wise at Bear Stearns estimateed that spine-related sales will be about 21 percent of Medronic's sales this year, and jump to about 25 percent with Kyphon. More importantly, he wrote in a note to clients, Kyphon will add revenue growth for Medtronic, perhaps an additional 3 percent in annual sales growth.

Medtronic said it would ask a judge to drop a patent lawsuit between the two companies once the deal closes.

Medtronic said it expects that its worldwide sales force will help boost overseas sales of Kyphon products.

Also Friday, Kyphon said its second-quarter profit rose 16 percent to $11 million, or 23 cents per share, compared with profit of $9.5 million, or 21 cents per share, during the same period a year prior. Revenue rose 43 percent to $144.3 million from $101.1 million.