Stryker Corp. (SYK) said Monday it has signed a definitive agreement to acquire Orthovita Inc. (VITA), a small maker of orthobiologic and biosurgery products, for about $304 million in cash.

Shareholders will receive $3.85 for each share, a 41% premium over Friday's close. The deal also includes $12 million in debt. Shares of Malvern, Penn.-based Orthovita surged early Monday to just under the offer price, a level not reached since about a year ago.

Stryker, Kalamazoo, Mich., traded down a penny to $63.27.

Orthovita competes in the $5 billion orthobiologics market, offering synthetic bone grafts through its Vitoss product and also competes in vertebral augmentation with its Cortoss product. The company's product sales rose 2% to about $95 million last year, and analysts surveyed by Thomson Reuters expect, on average, a 4.4% gain this year.

Stryker's big business for replacement hips and knees has posted flat sales recently as the orthopedics market struggles to overcome a slowdown caused by economic turmoil and high unemployment. The sluggish orthopedic performance has been offset, however, by strong growth in a business for hospital and surgical products that continues to rebound from a slowdown in hospital spending.

"With this acquisition we are meaningfully expanding our orthobiologics product portfolio and strengthening our competitive position in key segments of the Spine, Orthopaedics and Biosurgery markets," Stryker Chief Executive Stephen P. MacMillan said in a release.

The Orthovita deal comes just weeks after big orthopedics rival Johnson & Johnson (JNJ) announced a $21.3 billion deal for Synthes Inc. (SYST.VX) to bolster its trauma and spinal businesses.

Stryker plans to launch an all-cash tender offer for Orthovita within 10 business days, which will be completed in the second quarter.

Orthovita has recommended shareholders accept the offer, and those who hold about 14.5% of the company's shares outstanding have already committed.

Stryker reported last month that its first-quarter earnings fell 4.4% on acquisition and integration-related charges, but the company posted a double-digit sales increase behind continued growth in its medical-supplies franchise and a newly acquired business.

-By Jon Kamp, Dow Jones Newswires; 617-654-6728; jon.kamp@dowjones.com

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