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Medtronic finds a perfect fit
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November 3, 1998: 12:27 p.m. ET
CEO says Sofamor Danek purchase will expand treatment opportunities
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NEW YORK, (CNNfn) -After a recent slowdown, Wall Street's mergers and acquisition specialists have been working overtime once again. According to the tracking service Mergerstat, 43 deals were announced Monday alone.
For the full year, 9,623 takeovers or mergers have been announced with a total value of nearly $1.4 trillion.
On Monday, the world's leading manufacturer of pacemakers announced its acquisition of Sofamor Danek, a maker of medical equipment for spine and head surgeries. The deal was valued at over $3 billion.
On the heels of the announcement, Medtronic's shares rose 1 9/16 while Sofamor surged 8 1/2.
CNNfn spoke with Medtronic Chairman and CEO William George about recent advances in spinal surgery and neurosurgery, and the effect this merger will have on the company's bottom line.
Here is a transcript of his "Business Day" remarks.
DEBORAH MARCHINI, CNNfn ANCHOR: This is the latest, and I believe the largest, in a long period of acquisitions for Medtronic.
WILLIAM GEORGE, CHAIRMAN & CEO, MEDTRONIC: It is and it will give us the opportunity to transform our company by creating a billion-dollar franchise in the neurological field, which can compliment our cardiac rhythm franchise.
MARCHINI: Why is it better to be big?
GEORGE: Well, I don't think it's better to be big, but this is an opportunity to treat a lot of people in the rapidly growing field of spinal surgery. And we have neurosurgery business of our own and the two fit together very well.
So it's not a question of size so much as it is a question of opportunity to treat more patients in a field where they're largely treated with a market-leading company like Sofamor Danek.
MARCHINI: What's the immediate impact of this merger on your company's bottom line?
GEORGE: Well, for this year, it probably won't change much, but next year it will be accretive and it will increase significantly thereafter. And it will certainly accelerate our overall revenue growth of the company.
MARCHINI: Does cost cutting also figure into your plans?
GEORGE: Not really. This is a merger more about revenue synergies because we have the same customers, but an overlapping product. Those customers are spinal surgeons, neurosurgeons, areas where we serve the customers with our current neurological project products, and Sofamor serves it with their products, and I think there's excellent synergy on a global basis.
MARCHINI: There is also cost control efforts on a global basis. And these products presumably are expensive. How is that affecting you?
GEORGE: Well, I think we are going to see that these products will reduce the cost of treating people because we're going to have a successful surgery and get them back to a full, active life, back to full employment.
Certainly true of a lot our products which reduce pain and relieve people of a lot of symptoms of neurological disease so they can lead a normal life. And so I think it actually reduces cost in the overall health care system.
MARCHINI: That's what you think, but what do the insurance companies think? What are they willing to pay for?
GEORGE: Well, all these procedures are reimbursed at present. So that's really a good sign. So we'll have to, in some of the more advanced procedures, look for new reimbursement. For the Sofamor procedures, they are easily reimbursed at the present time around the world.
MARCHINI: Are reimbursement rates for your business going down, though?
GEORGE: There's pressure on reimbursement rates. And at the same time, we're trying to reduce the cost of our products and also the cost of the surgery itself.
These products can cut the time in surgery by as much as 50 percent, and I think that's very important because it means a patient has less trauma and the physicians don't spend as much time in the operating room.
MARCHINI: OK. What's next? More acquisitions to come?
GEORGE: Well, we have a tremendous amount of internal growth right now in our cardiac rhythm field and particularly as we get into heart failure.
I would say that's going to be the really big area as we look forward, in addition to the neurological area, because heart failure patients are largely under treated today. And we think we can help them with a lot of new products we have coming through our internal pipeline.
MARCHINI: Did I hear you say heart failure as a neurological procedure?
GEORGE: No, heart failure, in addition to the neurological field -- two rapidly growing areas for Medtronic.
MARCHINI: OK. Very good. Your stock has been a little bit punished. To look at a chart of what has happened to it going from its highs of the year down a bit. What can you say to the shareholders about that?
GEORGE: Well actually, we think we've done very well. It's been a rough market out there, but our stock has responded very favorably to these merger announcements such as yesterday's, and also to the new product announcement such as our new dual chamber defibrillator, the GEM DR, which brought the stock up considerably from the low 50s, and we're now trading in the mid to upper 60s. So we're feeling good about the way our shareholders are responding to many of the new strategic initiatives at Medtronic.
MARCHINI: Does this deal require regulatory approval? You expect it to go through?
GEORGE: I think it will. I think it'll go smoothly. We don't have any product overlap with Sofamor Danek. So I think this should go quite smoothly. 
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