Ahead of the Bell: Kinetic Concepts

A Goldman Sachs analyst thinks medical technology maker Kinetic Concepts' buyout of a skin graft maker "raises more questions than answers."

Kinetic Concepts Inc. agreed to buy LifeCell Corp. for $1.7 billion, or $51 per share, on Monday. Kinetic Concepts shares rose, and Branchburg, N.J.-based LifeCell shares jumped to an all-time high. A Wachovia analyst upgraded Kinetic Concepts' stock Tuesday morning.

But Goldman analyst Lawrence Keusch said Kinetic Concepts is paying an "expensive" price for LifeCell, which will provide just 11 percent of the combined company's revenue, and will not reduce the risk of competition for Kinetic Concepts' wound-closure products or lower costs.

San Antonio-based Kinetic Concepts said the deal will begin adding to its profits in 2009, but Keusch expects the buyout to significantly cut the company's profit in 2008 and 2009. He said the company will have to refinance its debt for the deal to be profitable before 2011.

He maintained a "Sell" rating and a $42 price target, implying the stock will fall 15 percent over the next 12 months.