St. Jude Medical to Buy Thoratec

St. Paul, Minn.-based St. Jude Medical Inc. has agreed to buy heart pump maker Thoratec Corp. for $3.5 billion. The all-cash transaction represents a premium of 40.1 percent compared to $45.34, Thoratec’s volume-weighted average trading price for the 30 trading day period ending July 17, and a 35.4 percent premium to the closing price on Thoratec’s last unaffected trading date on July 17 of $46.89. The transaction is expected to be completed in the fourth quarter of 2015.

The deal, if completed, will be St. Jude’s largest deal yet. Prior to this one, the St. Paul, Minn.-based device company’s biggest deal was the $1.25 billion acquisition of Advanced Neuromodulation Systems Inc. in 2005, according to Dealogic.

Pleasanton, Calif.-based Thoratec makes mechanical circulatory support (MCS) technology for the treatment of advanced heart failure (HF), which includes ventricular assist devices (VADs) that are used for both chronic and acute patient support. Zacks analysts predict that the addition of Thoratec’s Heartmate II device to St. Jude’s portfolio will be significantly positive.

“Thoratec’s strong core business and rich portfolio of new products complement St. Jude Medical’s innovation-based growth strategy and will benefit patients, customers, employees and shareholders of both companies,” said Daniel J. Starks, chairman, president and CEO of St. Jude Medical. “The addition of Thoratec’s leading ventricular assist device portfolio expands and enhances St. Jude Medical’s established presence in heart failure therapies. We look forward to welcoming Thoratec employees to our company at such an exciting time in our history.”

“Thoratec is pleased to join St. Jude Medical as we create a company that’s uniquely positioned to advance treatment options for patients living with heart failure,” said D. Keith Grossman, president and CEO of Thoratec. “By combining the capabilities and leading technologies of both companies, we will be able to expand access, reduce costs and advance heart failure therapies on a global basis. Our employees and customers have worked together tirelessly over many years to create the market leader Thoratec has become. It is gratifying to see the creation of a combined product platform and capability with St. Jude Medical that will fulfill the promise of our products to many, many more patients in the years to come.”

The deal is not set in stone yet, however. Thoratec may have other suitors in Medtronic plc and Abbott Laboratories Inc., analysts said, and Thoratec has a 30-day shopping period in which it can seek out better offers.

St. Jude laid out the numerous strategic and financial benefits of the transaction. The obvious benefit is the creation of a much more robust heart device portfolio. As well as the Heartmate II, the Heartmate 3 and Heartmate PHP (percutaneous heart pump) will be added to St. Jude’s wallet. Thoratec also brings with it a full pipeline of new products.

The deal is also expected to Accelerate St. Jude Medical’s sales growth trajectory: Thoratec is claimed to be the global leader in the VAD market, which is currently estimated to be approximately $750 million. Thoratec also recently earned CE mark approval for its Heartmate PHP, allowing the company enter a global market expected to exceed $300 million in 2016. This acquisition positions St. Jude Medical to enter new markets totaling more than $1 billion that are expected to grow approximately 10 percent annually, benefitting its sales growth profile beginning in 2016. St. Jude’s existing wide range of relationships with physicians and surgeons, as well as considerable global reach, will be a great boon for the marketing of Thoratec’s devices.

Under the terms of the merger agreement, Thoratec shareholders will receive $63.50 in cash, without interest, for each share of Thoratec common stock they own. The transaction is conditioned upon, among other things, Thoratec shareholder approval, regulatory approvals and other customary closing conditions. The transaction is not conditioned on financing. St. Jude Medical intends to fund the transaction through proceeds from additional bank term loan debt and senior unsecured notes. St. Jude Medical is committed to maintaining a strong investment grade rating.