Fool.com: St. Jude to Buy Vascular Science (News) September 10, 1999

St. Jude to Buy Vascular Science

By Dave Marino-Nachison (TMF Braden)
September 10, 1999

Pacemaker and cardiovascular medical device maker St. Jude Medical (NYSE: STJ) today said it will buy privately held medical technology company Vascular Science, which is developing devices for coronary artery bypass grafting (CABG), for $80 million in cash and $20 million in milestone payments.

Certainly investors should note that Vascular isn't about to start contributing to St. Jude's bottom line in the immediate or even near future, as its products are in the developmental stage -- initial noncommercial human implants of its first VSI product are currently underway in Europe. As such, the deal is expected to dilute earnings in Q4 and 2000.

And heart valve disease management has actually represented a shrinking portion of the company's revenue mix over the last three completed fiscal years, falling to just below 28% as of December 31, 1998 from 28% in 1997 and nearly 31% in 1996.

"While there is always risk in acquiring an early stage company," said St. Jude President Terry Shepherd in a statement, "the opportunity to invest in what has the potential to be a truly enabling surgical technology, leverage the success of our heart valve business and fuel St. Jude Medical's growth in the years to come, more than justifies the purchase price for Vascular Science."

But the fact remains that St. Jude may have considerable additional work to do to keep pace in the fight for turf in the CABG business, with competitors Guidant (NYSE: GDT) and Medtronic (NYSE: MDT) both recently announcing big-dollar acquisitions in the surgical devices sector.

Late last month, Guidant agreed to buy CABG products maker CardioThoracic Systems (Nasdaq: CTSI) for $313 million in stock, signifying a departure from its traditional realm of stents and defibrillators. Medtronic, after CardioThoracic, is second-fiddle in the CABG business.

That may leave some investors wondering why there hasn't been more talk of the $2.56 billion (in terms of market capitalization) St. Jude being acquired by one of the aformentioned big boys -- both of which dwarf St. Jude with Medtronic sporting a nifty $46.87 billion in market value. Could it be it's because potential acquirers don't see St. Jude as owning the kind of technology that would make a buyout worth the trouble -- especially with many smaller companies available for less fuss and muss?

Still, investors have nevertheless stuck with the St. Jude story: in fact, its share price value has risen more quickly than both Guidant's and Medtronic's over the past year.

And today, St. Jude stuck with itself, announcing plans to buy back up to $250 million of its common stock over the next three years, beginning in Q4. That's about 10% of the total currently outstanding based on the stock's current market price.

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