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Medtronic sets $3.7B deals
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May 30, 2001: 2:07 p.m. ET
Medical firm to buy two diabetes treatment makers for cash and stock
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NEW YORK (CNNfn) - Medtronic Inc. agreed Wednesday to buy two companies that make products to treat diabetes, MiniMed Inc. and Medical Research Group Inc., for a total of $3.7 billion in cash and stock.
MiniMed (MNMD: up $2.81 to $46.81, Research, Estimates) owns a stake in Medical Research Group.
Under the agreement, Medtronic (MDT: down $0.01 to $42.94, Research, Estimates) will pay $48 a share in cash for MiniMed and about $420 million in cash and stock for MRG, a closely held corporation. Medtronic shares ended up 45 cents at $42.95 Tuesday. MiniMed shares rose $2.87 early Wednesday to $46.87.
The purchase is expected to close in late July or early August.
"We have been contemplating these two acquisitions for some time. We're confident it represents a very strong strategic financial and cultural fit and a way for Medtronic to enter the high-growth diabetes treatment market," Medtronic CEO Art Collins told analysts during a conference call Wednesday. "This acquisition, simply put, is a very good one and makes a tremendous amount of sense."
Medtronic makes stents, catheters and other devices to treat chronic heart conditions. Acquiring MiniMed and MRG gives Medtronic a stake in the rapidly growing diabetes treatment field.
"(Diabetes) is a chronic disease and it fits right in to many of the therapies we provide today," Collins told CNNfn's Money Gang.
About 2,500 Americans are diagnosed with diabetes each day, according to the American Diabetes Association. Treatment for the disease costs $98 billion a year in the United States.
Kevin Kotler, an analyst with ABN Amro with an "add" or middle rating on the stock, said he liked the deal, which should restart Medtronic's growth rate.
"MiniMed is the pre-eminent franchise in diabetes," Kotler told CNNfn. "I think it will take Medtronic's growth rate from about 10 to 11 percent, for fiscal 2002, to about 15 percent."
The new businesses should count for about 6 percent of Medtronic's overall sales. The company had sales of about $5 billion in 2000.
Minneapolis-based Medtronic also will gain access to a new "artificial pancreas" being jointly developed by MiniMed and MRG. The device, implanted in a diabetes patient's body, is meant to automatically regulate blood-sugar levels through insulin doses and glucose monitoring. The device has been implanted in two patients, the second of which occurred a few days ago, the companies said.
During the conference call, Medtronic's Chief Financial Officer Bob Ryan said the company could have enough cash on hand by the end of fiscal 2002 to fund 85 percent of the acquisition. Medtronic likely will take a 3 cents a share charge in 2002 as a result of the transaction. However, much of that will be offset by adopting new rules on reporting goodwill and amortization and some cost savings.
Ryan declined to provide earnings guidance beyond 2002, but said the company remains on target to achieve full-year earnings estimates of about $1.22 a share and that it could achieve 15 percent earnings growth. The acquisition also will add between $250 million and $280 million in annual revenue, Ryan said.
"We believe adding this new business will provide us a growth vehicle above the corporate average," Collins said. 
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Medtronic
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