UPDATE 4-Stryker to buy Boston Sci’s neurovascular unit

* Stryker to pay $1.5 billion in all-cash deal

* Price includes $100 million in milestone payments

* Boston Scientific: deal to dilute 2011 EPS by 4-6 cents

* Boston Scientific to use proceeds for deals and debt
(Adds more analyst comment, updates stock prices)

By Debra Sherman

CHICAGO, Oct 28 (BestGrowthStock) – Stryker Corp (SYK.N: ) said on
Thursday it will buy Boston Scientific Corp’s (BSX.N: ) business
that makes devices used to treat stroke, aneurysm and other
vascular conditions in the brain for $1.5 billion in cash to
diversify its products as its orthopedics business slows.

Stryker, a manufacturer of orthopedic implants, hospital
beds and surgical instruments, said the price includes $100
million of milestone payments. The deal is expected to close
before the end of the year.

Stryker executives said on a conference call on Thursday
that the company expects the acquisition to be neutral to
earnings or add to them immediately and to contribute to
earnings more meaningfully in 2012 and beyond.

They said they project sales of the business to finish the
year at $330 million to $340 million, down from $348 million in

Stryker executives said they expect sales in the unit to
increase by high single digits to low double digits on a
percentage basis by 2012 after launching new products. They
said operating margins are running around 30 percent and they
expect a steady flow of new product launches over the next 12
to 24 months.

It will be a stand-alone business with its own research and
development team, sales force and marketing department.

The worldwide market for neurovascular products, which
include implantable devices used for the minimally invasive
treatment of hemorrhagic and ischemic stroke, is about $900
million, growing 9 percent to 10 percent annually, Stryker

Chief Executive Stephen MacMillan told analysts that he
views the acquisition of the neurovascular business as an
extension of Stryker’s core business, but on a new platform.

He said that Stryker’s balance sheet remains strong and
that management will continue its strategy of using its cash
for acquisitions, share buybacks and dividends.

“In my mind, the ultimate rationale is it moves (Stryker)
further away from being somebody like Zimmer (Holdings Inc
(ZMH.N: )), which is so beholden to the orthopedic market, which
is under a lot of pressure,” Jefferies & Co analyst Raj Denhoy

“You look at Zimmer’s result this morning, orthopedics is
not a place that you would expect companies to want to double
down in; so that Stryker is deploying their capital in areas
further outside of orthopedics in my mind is perhaps not a bad
strategy,” Denhoy said. [ID:nN28104416]

For Boston Scientific, the deal provides much-needed cash
to expand into other areas as its core markets in heart stents
and implantable defibrillators have slowed. Boston Scientific
also has its pain management business up for sale.

Some Wall Street analysts noted the high price Stryker is
paying. “The sale price is well above the $800 million to $900
million we expected,” Wells Fargo analyst Larry Biegelsen wrote
in a research note.

Boston Scientific said it expects to allocate about half of
the net proceeds to acquisitions as it works to reshape its
portfolio, and the remainder to repay debt.

As a result of the divestiture, Boston Scientific estimated
its 2011 earnings per share will be diluted by about 4 cents to
6 cents.

“It is not clear to us that this deal is obviously
beneficial to either Boston Scientific or Stryker,” Bernstein
Research analyst Derrick Sung wrote in a research note.

“From a deal perspective, we think that Boston Scientific
is the winner in that they received a good price for their
business and that Stryker paid a high price for what they are
getting. However, Boston Scientific is giving up a highly
profitable division and further concentrating medium-term
earnings prospects in the decelerating DES (drug eluting stent)
and CRM (cardiac rhythm management) markets,” he wrote.

Shares of Stryker were off 72 cents or 1.4 percent to
$50.18 in afternoon New York Stock Exchange trading, while
shares of Boston Scientific were up 86 cents or 1.3 percent to
(Additional reporting by Lewis Krauskopf in New York; Editing
by Gerald E. McCormick and Robert MacMillan)

UPDATE 4-Stryker to buy Boston Sci’s neurovascular unit