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Why China Kanghui Holdings' Shares Soared

By Sean Williams – Updated Apr 7, 2017 at 12:41PM

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Is this meaningful or just another movement?

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of China-based orthopedic implant manufacturer China Kanghui Holdings (NYSE: KH) are soaring 21% following an agreement to be purchased by Medtronic (NYSE: MDT).

So what: China Kanghui, which makes implants specifically designed for trauma, the spine, and joint reconstruction, agreed to be purchased for $816 million, including debt, or $30.75 a share -- a 22.5% premium to yesterday's closing price. For Medtronic, the deal is expected to be earnings neutral in both 2013 and 2014 despite the fact that China Kanghui's sales rose by 35% last year.

Now what: Today's move really isn't that surprising because Medtronic has made no secret about wanting to make acquisitions in emerging markets to drive growth. China Kanghui will allow Medtronic to expand its presence in China, although the price, about 27 times China Kanghui's forward earnings, seems a bit steep to me.

Craving more input? Start by adding China Kanghui Holdings to your free and personalized Watchlist so you can keep up on the latest news with the company.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

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