* Agrees to buy U.S. sports medicine firm ArthroCare
* Sports medicine growing faster than false hips, knees
* To pay $48.25 a share cash, 20 pct above 90-day average
* S&N shares up 1.1 percent
By Paul Sandle
LONDON, Feb 3 Britain's Smith & Nephew is
to buy ArthroCare Corp for an agreed $1.7 billion in
cash to strengthen its treatments for sporting injuries, an area
growing faster than its main replacement hips and knees
Smith & Nephew (S&N) said on Monday it would pay $48.25 a
share, a 20 percent premium to the average share price of
Austin, Texas-based ArthroCare over the past 90 days.
S&N Chief Executive Olivier Bohuon said revenues at the
British firm's sports medicine business were currently growing
by a high single-digit percentage, compared with a low
single-digit for replacement hips and knees.
"We wanted to acquire in high-growth businesses and sports
medicine is definitely one of them," he said, adding
ArthroCare's expertise in treating shoulder joints would
complement S&N's strength in knee surgery.
The deal comes just weeks after ArthroCare signed an
agreement with the U.S. Department of Justice to resolve a
six-year long investigation regarding allegations of securities
and related fraud committed under a previous management team.
ArthroCare, which had net sales of $368 million in 2012,
also comes with an ENT (ear, nose and throat) franchise that can
be developed outside the United States, Bohuon said.
Mick Cooper, analyst at Edison Investment Research, said:
"The acquisition of ArthroCare makes clear strategic sense; it
makes the company a leader in sports medicine and expands its
reach into the ENT market, thereby improving its long-term
S&N shares, which have risen by 9 percent in the last three
months, closed up 1.1 percent to 886 pence on Monday, valuing
the group at about 7.8 billion pounds. Shares in ArthroCare were
up 7.3 percent to $48.70 at 1654 GMT.
The deal, which is backed by ArthroCare's board and One
Equity Partners, its largest shareholder with 17 percent, will
add about $85 million to S&N's annual trading profit in the
third full year after the deal closes, the British firm said.
Including the cash on ArthroCare's balance sheet, S&N said
the acquisition would cost it a net $1.5 billion, financed from
its debt facilities and cash balances.
Sports medicine typically involves non-invasive surgery to
repair soft tissue in injuries sustained on the playing field.
Bohuon said ArthroCare's radio-frequency technology for
non-invasive surgery would combine with S&N's blade portfolio to
give surgeons more choice.
Revenues in S&N's sports medicine business rose 7 percent in
the third quarter of its financial year, compared with 5 percent
growth across the whole group.
JPMorgan and Centerview Partners acted as financial
advisors for Smith & Nephew. Piper Jaffray & Co. and Goldman
Sachs acted as financial advisors to ArthroCare.