VITA Orthovita, Inc. (MM)

Orthopedic devices major Stryker Corp (SYK) reported the successful completion of its $3.85 per share tender offer for its previously-announced acquisition of Pennsylvania-based orthobiologic and biosurgery products maker Orthovita Inc (VITA).

The offer, which was launched in May 2011 through the Michigan-based devices maker’s indirect wholly owned subsidiary Owl Acquisition Corporation, expired at midnight June 24, 2011.

Shareholders holding roughly 87.6% of Orthovita’s outstanding shares have reportedly tendered their shares. The shares not tendered in the offer will be canceled and converted into the right to receive $3.85 in cash per share.

With the majority of the outstanding shares of Orthovita have been tendered, Stryker now aims to promptly complete the acquisition through the merger of Owl Acquisition Corporation with Orthovita. Following the acquisition, Orthovita will become an indirect wholly owned subsidiary of Stryker.   

Stryker inked a deal on May 16, 2011, to buy Orthovita for $316 million in cash. Per the agreement, shareholders of Orthovita will receive $3.85 for each share they hold, representing roughly 41% premium over Orthovita’s closing price of $2.73 on May 13. The deal value (of $316 million) includes the assumption of $12 million in Orthovita debt.

Orthovita, with annual sales of $95 million, is a leader in synthetic bone grafts and competes in the $5 billion orthobiologics (substances that help heal injuries) market. The company’s orthobiologic product range includes the Vitoss bone graft substitute and the Cortoss bone augmentation material. Moreover, its Biosurgery business offers hemostasis products including the Vitagel surgical hemostat.

The acquisition is a strategic fit for Stryker, strongly complementing its existing orthobiologics offering while strengthening its competitive position. Upon completion, the deal is expected to be neutral to the company’s adjusted earnings per share for 2011.

We believe that Stryker is poised for growth driven by new product launches, acquisitions and an improving hospital capital spending environment. However, the company remains exposed to pricing and procedure volume pressure on its hip, knee and spine products. Our long-term Neutral recommendation on the stock is backed by a short-term Zacks #3 Rank (Hold).

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