June 5 Medtronic Inc said on Thursday it is focused on driving faster revenue and profit growth after several sluggish years and would expect any acquisitions it considers to support a plan for returning value to shareholders.
Bloomberg on Wednesday reported that the world's largest standalone medical device maker was considering a takeover of London-based Smith & Nephew, which specializes in hip and knee implants, in a move to help lower its taxes.
Last week, orthopedic device maker Stryker Corp said it did not intend to make an offer for Smith & Nephew, following a Financial Times story that suggested it was preparing a bid.
Medtronic executives, speaking Thursday at the company's analyst meeting, said they would not answer questions about potential acquisitions. Instead, the company emphasized it would adhere to a set of guidelines for any future deals, including a goal for minimal negative impact on earnings per share.
Medtronic Chief Executive Omar Ishrak said the company would look to build on its track record for acquisitions that added $1.4 billion in revenue with no net earnings dilution in the last fiscal year. The company has completed 16 acquisitions in the past five years.
Wells Fargo Securities analyst Larry Biegelsen said he does not believe Medtronic is preparing a bid for Smith & Nephew, which holds a 12 percent share of the hip and knee market. Acquiring the smaller device maker would not give Medtronic the heft it seeks when entering a new market, Biegelsen said in a note to clients.
"Management indicated that deals would be primarily based on strategic fit, not financial reasons such as tax inversion," Bielgelsen said.
Ishrak, at the analyst meeting, reiterated the company's long-term goals of accelerating revenue growth to the mid-single digits, with earnings per share growing 200 to 400 basis points above that.
Medtronic also expects to generate more than $25 billion in free cash flow over the next five years and remains committed to returning 50 percent of it to shareholders.
Like many of its peers in the medical device sector, Medtronic has struggled with weaker demand for treatments, especially elective procedures, due to high unemployment and changing insurance policies that require patients to shoulder more of their healthcare costs.
Hospital cost-cutting efforts are pressuring prices on products such as orthopedic devices as well as heart stents and implantable defibrillators and pacemakers.
Medtronic said it would improve revenue growth through a combination of new therapies, sales in emerging markets and a focus on providing hospitals with integrated health strategies surrounding the products it sells.
Shares of Medtronic were down 1.9 percent at $62.01 in afternoon trading. (Reporting by Susan Kelly in Chicago; Editing by Bernard Orr)