June 6, 2014, —(Marketwatch) Bloomberg reported late Wednesday that Medtronic Inc. is eyeing the prospect of buying British-based Smith & Nephew in a merger of two medical device makers that would allow Medtronic to move overseas and lower its tax liability.
Minneapolis-based Medtronic MDT +1.90% is the second company mentioned as a potential suitor for Smith & NephewSNN -0.01%. Last week Stryker Corp.SYK was identified as a prospective buyer.
Medtronic officials wouldn’t comment on the report. Various sources place Smith & Nephew’s market cap at around $16 billion.
Smith & Nephew shares soared on the report, jumping more than 12% to $97.27. The stock was trading just above $80 a week ago, just before the Stryker report came out from the Financial Times. Medtronic shares were up more than 3% to $63.22 while Stryker still managed to eke out a slight gain to $85.53.
Medtronic’s possible tax inversion plan to relocate its legal address comes on the heels of a similar proposal by drug giant Pfizer Inc. PFE -0.07%, which sought to lower its tax rate by buying U.K.-based AstraZeneca AZN +0.10%
However, RBC Capital Markets analyst Glenn Novarro says using Smith & Nephew’s corporate address would do little to lower Medtronic’s tax rate of roughly 19%. The U.K. tax rate is roughly 21% and Smith & Nephew’s is 29%, Novarro said.
He added that the deal could help spread Medtronic’s reach but may not be the best fit in product lines.
“We believe the deal fits with [Medtronic] CEO Omar Ishrak’s strategy of globalization. However, while [Smith & Nephew] may fill gaps in trauma and sports medicine, the company’s presence in joint reconstruction, which is the largest part of the market, is still modest,” Novarro said.