Structure of the HeartWare acquisition
On August 23, 2016, Medtronic (MDT) completed its acquisition of HeartWare International. The deal gives shareholders of HeartWare International the right to receive $58 per share in cash for each common stock of HeartWare International.
The acquisition is expected to have no net EPS dilution for the first two years of the deal and to be earnings-accretive in its third year. After the acquisition, HeartWare International will be part of Medtronic’s Heart failure business under its CRHF (Cardiac Rhythm & Heart Failure) division within the company’s CVG (Cardiac and Vascular Group) segment. The graph above shows Medtronic’s CVG segment performance in 1Q16.
Strategic benefits and opportunities of the deal
HeartWare International, a leading company in the advanced heart failure device market, offers miniaturized, less invasive MCS (mechanical circulatory support) technologies. It manufactures ventricular assist devices (or VAD), which are heart implants, and has a market-leading HVAD system with the world’s smallest VAD with full support. The deal provides Medtronic access to an advanced, minimally invasive heart implant that will help the company expand its product portfolio by offering products and services that provide better patient outcomes. The acquisition is expected to position Medtronic as the leading player in the global VAD market.
The HeartWare International acquisition isn’t expected to bring any changes to Medtronic’s results in fiscal 2017. The company expects the deal to fulfill its long-term acquisition metrics.
Other major Medtronic competitors that have pursued mergers and acquisitions in the US medical device industry include Zimmer-Biomet Holdings (ZBH), Stryker (SYK), and Becton Dickinson and Company (BDX). The iShares Edge MSCI Min Vol USA ETF (USMV) invests approximately 0.81% of its portfolio in Medtronic.
Next, we’ll look at Medtronic’s shareholder returns in 1Q17.