* Stryker expects all-cash deal to close before year-end
* Acquisition expected to contribute to EPS after 2010
* Stryker shares rise 0.8 pct (Adds company and analyst comments)
By Susan Kelly
CHICAGO, Nov 30 (Reuters) - Orthopedic device maker Stryker Corp (SYK.N) said on Monday it would acquire Ascent Healthcare Solutions, a privately held reprocessor of medical devices, for $525 million in cash.
The boards of Stryker and Ascent have approved the transaction, which is awaiting U.S. antitrust approval. The business would become a division of Kalamazoo, Michigan-based Stryker’s MedSurg group.
Stryker said the transaction, which it anticipates will close before the end of 2009, should be neutral to its 2010 per-share earnings and add to earnings thereafter.
Pressure on hospitals to cut costs is driving demand for reprocessed medical devices, which offer a 50 percent savings over new devices, said Wells Fargo Securities analyst Michael Matson, citing statistics from a reprocessors trade group.
“However, we think that this deal could result in increased cannibalization of Stryker’s higher-margin new products by lower-margin reprocessed products and could cause some sales force integration issues,” Matson said in a note to clients.
Matson said Stryker buying Ascent appeared to be the first effort by an original equipment manufacturer to enter the device reprocessing market.
Ascent, with over 900 employees and reprocessing facilities in Phoenix and in Lakeland, Florida, had sales of more than $100 million in 2008.
The company provides device reprocessing and remanufacturing services to more than 1,800 hospitals and numerous group purchasing organizations in North America. Its products includes cardiovascular, orthopedics, gastroenterology and general surgery devices.
Stryker, in an emailed statement to Reuters, estimated that of the $32 billion U.S. market for disposable medical devices, about $3.6 billion consists of devices that can be safely reprocessed. The target market for reprocessed devices, therefore, is about $1.8 billion, the company said.
Reprocessors are regulated by FDA and must demonstrate that their devices are as safe and effective as original devices, Stryker said.
Stryker said its move into the reprocessing market underscores its commitment to reducing healthcare costs and helping the environment, diverting thousands of pounds of potential medical waste from landfills.
“Reprocessing and remanufacturing saves hospitals money and reduces medical waste,” the company said.
Stryker shares rose 40 cents, or 0.8 percent, to $50.09 in afternoon trading on the New York Stock Exchange. (Reporting by Susan Kelly; Editing by Gerald E. McCormick and Tim Dobbyn)