dj Orthopedics Buys Cast Maker

Medical device maker dj Orthopedics’ stock rose sharply Monday after the company said it’s buying cast manufacturer Aircast for $290 million in cash.
    The deal, which dj said will nearly double the size of its international business, pushed company shares up $5.79, or 20 percent to $35.47.
    Like dj, Aircast develops nonsurgical orthopedic devices. Aircast is mostly famed for its small arm wrap that can be found on weekend warriors battling tennis and golfer’s elbow. The company’s orthopedic product portfolio also includes ankle bracing products, cold therapy systems, and fracture boots.
    dj will also acquire Aircast’s smaller vascular systems business that makes products to prevent deep-vein blood clotting.
    Vista, California-based dj was quick to state the acquisition will help boost earnings, but failed to say by how much. Wall Street analysts are speculating the buyout could add $0.10 per share in 2006, and about $0.25 to $0.35 per share in 2007.
    A heavily contributing factor to the earnings increase will be driven by transferring U.S. manufacturing to Mexico, where labor costs are substantially lower. The move should add an additional $15 million to $20 million to dj’s bottom line, said Stanford Group Company medical technology analyst John Putnam in a research note. The merger will also boost dj’s sales expansion, especially abroad.
    “Aircast’s business will add a direct sales presence in new geographies where we presently utilize local distributors,” said Les Cross, President and CEO of dj Orthopedics. “Aircast will also add critical mass to our direct sales efforts in Germany, the U.K., France, and the Nordic countries, and will bring important infrastructure to our growing European business.”
    Despite the overall positive nod for the merger, it’s a big purchase for dj, which has a market cap of $787 million.
    “Our only concerns are the high level of debt that [dj] will assume to consummate this transaction,” Mr. Putnam wrote. He went on to speculate whether the transaction could limit dj’s ability to make other acquisitions.