Smith and Nephew is outpacing the FTSE 100 on renewed talk of a possible from US peer.
Analysts at Berenberg said the US group could afford to £12 a share, or possibly more for the artificial hip and knee specialist, even though it said last month it did not intend to make a bid for the business, ruling itself out for six months. However Berenberg said a deal made sense, even if it was not imminent, given other takeovers in the sector, including Zimmer's $13.35bn bid for Biomet. Smith and Nephew itself recently completed the purchase of ArthroCare for $1.5bn. Berenberg said:
[We believe] that an offer for Smith & Nephew by Stryker would make both strategic and financial sense at up to, and possibly exceeding, £12 per share. However, in our view there are notable anti- trust concerns. For this reason, we think the most likely path for Stryker to follow is to await the outcome of the Zimmer-Biomet transaction before making any decision on whether to progress with Smith & Nephew. Thus we do not expect any bid in the near term.
We believe sections of the hip, knee, joint repair and trauma/extremities markets would give rise to anti-trust concerns and likely require remedies.
For Smith & Nephew shareholders, we would advise waiting to see what materialises [from the Zimmer/Biomet situation] and perhaps consider taking some profits, but would not advocate adding to positions at this time.
However some investors do not seem prepared to wait, pushing Smith & Nephew's shares up 27p or 2.6% to £10.57.
Overall the FTSE 100 is currently down 25.55 points at 6810.75, ahead of the key interest rate decision from the European Central Bank on Thursday and US non-farm payroll figures a day later.
Tesco is among the leading fallers, down 3.9p to 293.6p after a disappointing update.
Lower down the market Monitise has added 2.5p to 65.75p after the mobile banking and payment specialist appointed former Visa executive Elizabeth Buse as co-chief executive. Canaccord Genuity said:
Ms Buse's appointment provides validation of Monitise's technology and market position and gives us additional confidence in management's ability to execute on its strategy to accelerate user adoption. Ms Buse's large company track record is an ideal complement to [co-chief Alastair] Lukies' entrepreneurial talent and ability to provide compelling vision and strategy. The appointment should be relatively low risk and Ms Buse should be able to begin contributing quickly, in our view. She and Mr Lukies have worked together in the past and Ms Buse comes with a significant understanding of Monitise. She was the first Visa representative to sit on Monitise's board, participating from July 2010 to October 2012.
Ms Buse's interests have been aligned with shareholders. She has been granted five million options with a 68p hurdle and a vesting period of three years. The plan is significant and appropriately structured towards long-term value, in our view.
Thursday update:
Another US group, Meditronic, could also be looking at Smith and Nephew, Bloomberg reported on Wednesday night. As with Pfizer's move on AstraZeneca, part of the reason for the interest could be to reduce the US company's taxes by moving its base overseas.
This has sent Smith and Nephew's shares even higher on Thursday, up 5% to £11.19.
