UPDATE 2-ArthroCare says to explore options; shares jump

(Adds analysts' reactions, updates stock movement)

By Jennifer Robin Raj

BANGALORE, March 3 (Reuters) - Medical device company ArthroCare Corp ARTC.O said it is exploring financial and strategic options, including sale of some assets, a possible merger and share buyback, sending its shares up 15 percent.

The current stock price does not reflect the fundamental value of its business, the company company said, adding it has hired Goldman Sachs to assist it in the process.

"It's shocking," Susquehanna Financial Group analyst David Turkaly said by phone.

"To me, a stock being down alone is not typically a reason to initiate a strategic review and possibly sell your company," Turkaly, who rates the stock at "neutral," said.

"This announcement strikes us as something that may have been put together somewhat quickly on a reactive basis... with the primary goal potentially being to create a short squeeze (over 54 percent of the stock is short)," Turkaly said.

Prior to the announcement, the stock was trading at about 21 times expected 2008 earnings, compared with the health care equipment sector average of about 54.

Compared to other companies in the medical device sector that have struggled with poor results, ArthroCare is doing well, Turkaly said by phone.

During 2007, the company reported a 36 percent rise in profits, while total revenue rose 21 percent. It had forecast a revenue growth of at least 20 percent for 2008.

READY FOR TALKS

With its annual report filed on Friday, the company has audited financial statements to hold discussions with potential suitors, Piper Jaffray analyst Mark Mullikin, who viewed the announcement as a positive for the stock, said.

"I think the stock is undervalued at current levels and really the board of directors is just pursuing their fiduciary duty to maximize shareholder value," Mullikin said.

"I think a sale of the company is more likely (than sale of assets)", Mullikin, who rates the stock at "buy," said.

When contacted, company spokeswoman Joele Frank did not specify if the company has identified any assets for sale, but said the board is looking at a broad range of options.

ArthroCare makes surgical products based on its patented Coblation technology, which dissolves target tissue and limits damage to surrounding healthy tissues.