"The proposed merger is no longer subject to receipt of antitrust approvals after previously receiving clearance from the relevant authorities in the United States and Germany," ArthroCare reported in a filing with the U.S. Securities and Exchange Commission.
Under terms of the deal, Smith &Nephew will pay $48.25 per share for ArthroCare --- a purchase that values the Austin,Texas-based company at 15.7 times adjusted 2012 earnings before interest, tax, depreciation and amortization. ArthroCare reported $377.9 million in total revenue last year and $261.7 million in profits.
Smith & Nephew executives expect the ArthroCare acquisition to add roughly $85 million to the company's annual trading profit after integration, slated to be complete in about three years. The merger is estimated to cost about $100 million over three years; Smith & Nephew will finance the deal through a $1 billion credit revolver and a new $1.4 billion term loan.
ArthroCare is a specialist in soft-tissue surgery. It makes devices, instruments and implants that improve surgical procedures, including a radio-frequency technology that dissolves soft tissue with less damage than traditional heat-driven processes. "With this transaction, we are accelerating our strategy to rebalance Smith &Nephew towards higher growth,"Smith &Nephew CEOOlivier Bohuon said when the deal was announced Feb. 3.
The merger will give Smith &Nephew the opportunity to sellArthroCare's products to new customers and markets, and use its own minimally invasive surgical technologies to expand ArthroCare's product range. The orthopedic device behemoth has licensed a version of ArthroCare's radio-frequency technology for a number of years.
Shortly after the merger was made public, an ArthroCare investor sued the company to block the buyout, contending the sale price was too low. Prior to the sale, some analysts suggested the company's share price potentially could have reached as high as $60 per share.
Over the last few months, ArthroCare has created a $15 million "transition incentive plan" to help retain employees as the company finalizes the acquisition. The plan will fund lump-sum bonuses for employees who meet merger-related conditions, including staying with the company at least two months after the deal closes, remaining in good standing and respecting any ArthroCare-related confidentiality obligations.
"We need to remain focused on what is important while in the midst of such a major event, and we understand that the resulting period of change will challenge you personally and professionally," a form letter stated.