$505 Million St. Jude Deal For Maker of Defibrillators
St. Jude Medical Inc. said yesterday that its Pacesetter subsidiary would acquire Ventritex Inc. in a stock swap valued at $505 million. Ventritex, based in Sunnyvale, Calif., is a leading maker of implantable heart defibrillators, which are small devices that deliver a jolt of electricity to stabilize a racing heart.
The deal would give St. Jude, a leading manufacturer of pacemakers, an entry in the defibrillator market, which is growing more rapidly.
In a related move, St. Jude, based in St. Paul, Minn., said it would acquire the cardiac-rhythm-management assets of Telectronics Pacing Systems Inc. from the Australian consumer and industrial product concern Pacific Dunlop Ltd. for $170 million (Australian), or $135 million (United States). Included in the deal is the acquisition is Medtel, a medical-products distribution business.
According to the terms of the Ventritex deal, shareholders will receive 0.6 share of St. Jude Medical for each of their shares. The ratio is not dependent on St. Jude's stock price. In addition, Ventritex will purchase up to 200,000 of its own shares before the merger closes, which is expected by early 1997. Frank Fischer, Ventritex's president and chief executive, will remain with the company.
St. Jude also said it would pay $25 million in cash to acquire certain intellectual property rights from Intermedics Inc., a Freeport, Tex. unit of Sulzer Medica Inc. and settle disputes between Intermedics and Ventritex Inc.
St. Jude shares closed at $37.325, down $1.25, while Ventritex shares closed at $21.563, up 93.8 cents. Analysts said the relatively modest prices for Ventritex and Telectronics reflected the fact that both companies were weakened.
Ventritex, having gained an early lead in the market for implantable defibrillators, failed to keep up with larger competitors like Medtronic Inc. and the Guidant Corporation. Telecronics, based in Englewood, Colo., has had losses since early 1995, when the company was forced by the Food and Drug Administration to temporarily cease manufacturing heart pacemaker products for the American market. That ruling followed the deaths of several patients fitted with faulty heart pacemaker leads -- the wires that deliver the electrical current from the device to the heart -- made by Telectronics.
''St. Jude has once again shown their savvy as buyers,'' said Kurt Kruger, an analyst with Montgomery Securities. ''They are paying a modest premium for Ventritex to gain a turn-key operation in the fastest-growing market,'' in the cardiology device business, he said.
St. Jude executives said the deals would allow them to offer a complete line of heart rhythm regulating devices. ''Since St. Jude entered the cardiac rhythm management market with the Pacesetter acquisition, we have been committed to offer our customers a full line of products'' said Ronald A. Matricaria, the chief executive of St. Jude. ''Today's announcements will allow us to fulfill that commitment.''
Michael Weinstein, an analyst with J. P. Morgan, said the Ventritex deal would reduce earnings per share in the short term, but would bolster revenue and earnings growth for St. Jude. ''This combination has made strategic sense for a while,'' he said. ''It raises the growth profile.'' He estimated that St. Jude's annual revenue growth could accelerate from about 9 percent to 12 percent and that earnings growth could go from 16 percent to 20 percent.
Defibrillators are small devices that monitor the heart for signs that it has gone into an unstable rapid beat. They deliver a measured dose of electrical current to shock the heart back to normal.