Devices & Diagnostics

Medtronic buys orthopedics company Kanghui for $755 million in first Chinese acquisition

Medtronic (NYSE:MDT) announced late Thursday that it is buying a Chinese orthopedics company, marking the […]

Medtronic (NYSE:MDT) announced late Thursday that it is buying a Chinese orthopedics company, marking the company’s first acquisition in that populous Asian nation.

The Minnesota medical device maker said that it is buying  China Kanghui Holdings for $816 million in cash but excluding Kangui’s cash the transaction is worth $755 million. Kangui trades on the New York Stock Exchange under the ticker symbol KH.

Kanghui is the largest acquisition in China by a U.S. company in the medical device industry, said Cindy Resman, a Medtronic spokeswoman. The business will function as a separate business unit, led by current management team and is the first such business of Medtronic’s to have headquarters outside the U.S.

“This agreement is directly aligned with our corporate strategies of globalization and economic value,” said Omar Ishrak, chairman and CEO of Medtronic. “Kanghui represents a significant investment in China, accelerating Medtronic’s overall globalization strategy with an established value segment distribution network and strong R&D and operational capabilities.”

According to the company’s website, Kanghui was founded in 1997 and has 30 products in the spine and trauma areas, including implants and instruments. Kanghui also sells its products to 28 countries.

“China is one of the fastest growing medical device markets with significant scale opportunities, and now Medtronic will establish a bigger and more direct local presence,” said Chris O’Connell, executive vice president and president of Medtronic’s Restorative Therapies Group, including the Neuromodulation, Spine, Surgical Technologies and Diabetes businesses, in a news release. “Kanghui brings Medtronic a broad product portfolio, a strong local R&D and manufacturing operation, a vast China distribution network and an exceptional management team. This move will provide Medtronic sustainable advantages in the fast-growing Chinese orthopedic segment, as well as a foothold in the emerging global value segment in orthopedics.”

This is the first major acquisition under Ishrak. However, it is not the only acquisition under him. In May Medtronic bought Advanced Medical Technologies AG, a German spinal implant company for an undisclosed sum, and expects to garner about $20 million in revenue in fiscal year 2013, which ends in April.

In its announcement Thursday, Medtronic said the material impact of the deal would be offset, but it did not say how. Making acquisitions that are not dilutive has been a mantra of Ishrak’s, who has said repeatedly that he wants to be more “disciplined” about acquisitions. The recent history of large acquisitions, especially within the Restorative Therapies Group which includes the Spine unit, has been less than stellar. Medtronic paid $4.2 billion to buy Kyphon in 2007, which has been a drag on the company’s Spine business.

Only time will tell, whether this Chinese acquisition will help alleviate the Medtronic’s troubled Spine business, hurt by controversy, competition from upstarts and physician-operated distributors, as well as inability to integrate Kyphon. Even in the last quarter, while its Core Spine business improved, the effect of Kyphon was still palpable.

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