Neuromodulation company Cyberonics ($CYBX) and cardiovascular device player Sorin in an all-stock deal that now values the combination at $3 billion. Upon news of the deal, investors drove Cyberonics' valuation up 25% to almost $1.6 billion while Sorin added more than 30% to about $1.4 billion.
The idea is to create a neuromodulation and cardiac surgery company that will be a major player in cardiac rhythm management, particularly in Europe and Japan. It's also a tax strategy; the new company will be domiciled in the U.K, which has a lower corporate tax rate than the U.S.
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| Cyberonics CEO Dan Moore |
The deal news comes just a day after Cyberonics disclosed on Feb. 25 that it had gained a CE mark for its Vitaria System to deliver autonomic regulation therapy to patients with moderate to severe heart failure and left ventricular dysfunction who remain symptomatic despite stable, optimal heart failure drug therapy.
Cyberonics shareholders will control the new company, which remains as yet unnamed. It will hold around 54% of the new entity, while Sorin shareholders will have about 46%. Each Cyberonics share is worth one share of the new company, while each Sorin share will exchange for 0.0472 new shares. The all-stock deal was valued at $2.7 billion (€2.4 billion) prior to its announcement.
"This transformational transaction maximizes both companies' strengths and leadership positions for the benefit of patients and our shareholders. Sorin is an ideal partner, given its heart failure programs and the ability to combine Vagus Nerve Stimulation with cardiac rhythm management technology," Cyberonics CEO Dan Moore said in a statement. "Sorin's well established international operations are expected to accelerate our epilepsy growth strategy by enabling us to reach a larger number of potential new patients in the underpenetrated markets outside the U.S. while integrating Sorin's technology expertise into future neuromodulation products."
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| Sorin CEO André-Michel Ballester |
Moore will become the non-executive chairman of the new company, while Sorin CEO André-Michel Ballester will be its CEO. The new board will be comprised of four Cyberonics members, four Sorin members and one other member to be chosen jointly.
The new company will be domiciled in the U.K. and apply for a dual-listing on the Nasdaq and the London Stock Exchange (LSE). The combination will be achieved through two mergers: first Sorin will merge into the new company via a cross-border process within the EU and then the newco will be merged into Cyberonics, which will remain a wholly owned subsidiary of the new company. At the transaction close, which is expected by the end of the third quarter, each company will stop trading on public markets.
About 4,500 employees in more than 100 countries around the world will work at the combined company. It will have three business units: Cardiac Surgery, Cardiac Rhythm Management and Neuromodulation. It will have three operating headquarters in Mirandola, Italy; Clamart, France and Houston, TX. Sorin is based in Milan, Italy, while Cyberonics is in Houston, TX.
It expects to have opportunities in three major categories: heart failure, sleep apnea and percutaneous mitral valve. Cyberonics plans to launch the newly approved Vitaria in Europe in the coming weeks. Meanwhile, Sorin has recently had its first successful implants of its Equilia Vagus Nerve Stimulation system for heart failure patients. The new company also will address obstructive sleep apnea market, and also in central sleep apnea with implants that have already launched in some European countries. It also expects to have new percutaneous mitral valve replacement/repair products on the market in 2017.
The resulting company will have annual pro-forma revenues of about $1.3 billion. The transaction is expected to be cash and EPS accretive to shareholders after 2016, with an estimated $80 million in annual pretax synergies by the end of 2018. The new company will have no net debt and generate strong cash flow, which it expects to invest in new med tech products.
- here is the merger release and a slide presentation
- and the Vitaria CE mark release
Special Report: So far, just 4 companies have a shot at winning the neuromodulation race - Cyberonics-Small, growing and all about neuromodulation