Wright Medical Group ($WMGI) plans to merge with peer Tornier ($TRNX) in an all-stock transaction designed to create a pure-play orthopedics extremities and biologics company valued at $3.3 billion. The resulting entity is expected to be a midsized growth company that's in what it says are the three fastest growing areas of orthopedics--upper extremities, lower extremities and biologics.
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| Wright Medical CEO Robert Palmisano |
The newly combined company will be incorporated in the Netherlands, where Tornier is currently headquartered. The inversion deal is one of the first since release of the Treasury Department's rules to deter the tax-saving practice. One of them was a med tech deal between hospital products and services companies Steris and U.K.-based Synergy Health.
During the conference call describing the deal, company officials said the short-term tax advantages will be minimal, according to the Wall Street Journal.
The deal values Tornier at a premium of 28% over its Oct. 24 closing price. Wright shares climbed 6% to $33.50 in after-hours trading on the news, while Tornier gained 31% to $31.44. Each share of Wright common stock will be exchanged for 1.0309 ordinary shares of Tornier.
"Together, we will have one of the most comprehensive upper and lower extremity product portfolios in the market, extending our leadership position and further accelerating our growth opportunities and path to profitability, all of which we believe will generate long-term value for our shareholders. In addition, this will provide our employees with opportunities for career growth and development as part of a much larger, dynamic organization," Robert Palmisano, CEO of Wright Medical, said in a statement.
He will become CEO of the newly combined company, to be known as Wright Medical Group N.V. The U.S. headquarters for the Lower Extremity and Biologics businesses will be in Memphis, TN, where Wright is currently headquartered. The U.S. headquarters for the Upper Extremity business will be based in Bloomington, MN, at an existing Tornier facility. Wright shareholders will own 52% of the new company and Tornier shareholders, 48%.
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| Tornier CEO David Mowry |
"Both companies have built a deep and loyal customer base and have highly complementary product portfolios, positioning the combined entity to deliver meaningful value to our shareholders. We believe that partnered together, Wright and Tornier will become the fastest-growing company in the Extremities-Biologics industry," said Tornier CEO David Mowry, who will become COO of Wright Medical Group N.V.
The news comes on the same day as Wright's announcement that it received PMA approval from the FDA for its Augment Bone Graft as an alternative to autograft for ankle and/or hindfoot fusion indications.
Both companies make implants to fix or replace the wrist and ankle as well as biologics to encourage healing and tissue regeneration. Tornier's U.S. portfolio also includes implants for the shoulder and elbow, as well as surgical tools enabling sports medicine.
The new company is expected to have revenues growing in the mid-teens with adjusted EBITDA margins approaching 20% in three to four years. Cost synergies are expected to be in the range of $40 million to $45 million within the first three years after the transaction completes; synergies will be due to overlapping public company expenses, support function and system costs as well as process and vendor consolidation. Wright expects the transaction will be accretive to the new company's adjusted EBITDA in the second full year after the transaction completes.
Separately, Tornier reported Q3 revenues were up 14.9% year over year to $76.7 million. Meanwhile, Wright's quarterly net sales of $71.3 million were up 24%. The transaction is expected to close during the first half of 2015.
- read the release
- here's the Wall Street Journal article (sub. req.)
Editor's Note: This article has been updated to indicate that the transaction involves tax inversion.