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Robotic "Sharknado": Stryker to Buy Mako Surgical

By Keith Speights - Sep 25, 2013 at 10:23AM

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Stryker's $1.65 billion buyout offer sends Mako shares flying.

A shark is flying as a result of a whirlwind.

Today's big news in the medical device world sounds similar to the plot of Sharknado, the made-for-TV movie that set Twitter abuzz this summer. A shark -- Mako Surgical (MAKO.DL) -- is flying, with shares up more than 80% after a whirlwind deal from big medical device maker Stryker (SYK 2.34%).

In the whirlwind
Unlike some acquisitions where word leaks out early and nothing substantial happens publicly for weeks, this deal pretty much came out of the blue. As best I can tell, there weren't even any significant rumors floating around that Mako was up for sale or that Stryker was interested.

Stryker's bid of $30 per share reflected a huge jump over Mako's closing price yesterday of just above $16 per share. Although the price tag isn't as high as Mako's peak levels during its heyday back in early 2012, shareholders are likely thrilled. Not surprisingly, the company's board of directors were unanimously in favor of accepting Stryker's $1.65 billion offer.

Many have been pessimistic about Mako for quite a while, including some well-known stock-pickers. The robotic orthopedic surgical system maker appeared to be treading water at best until it announced surprisingly good results last quarter. That led fellow Fool Steve Symington to proclaim that "Mako is back." With today's news, that sentiment seems right on track.

Blood in the water?
Sometimes when a peer is acquired, others in the industry get a little more wind in their sails. Is that the case with the Mako news?

Intuitive Surgical (ISRG 1.00%), which develops robotic systems for several surgical procedures, saw its shares rise more than 1.5% during early trading. Some of this increase could be related to the Stryker/Mako deal. However, I suspect that Intuitive's bump probably stems more from a positive opinion from Suntrust about the company's opportunities for higher sales to hospitals over the next couple of years.

Still, though, the fact that Stryker agreed to pay up for Mako's potential has to be encouraging for Intuitive Surgical's shareholders. Intuitive's stock has muddled along after a big sell-off in July following disappointing quarterly results.

Looking ahead
While the Mako acquisition is rewarding for its long-suffering shareholders, it also could be a smart move for Stryker over the long run. The medical device maker gains an attractive technology with Mako's RIO robotic-arm interactive orthopedic system.

Stryker seems to be paying on the high end, though. The acquisition will result in a hit to the company's adjusted earnings in the first year of around $0.10 to $0.12 per share. However, the second year's impact will be neutral and the pickup of Mako is expected to contribute to earnings growth after that.

Overall, while pricey, this should be a good deal for Stryker. And it's a great deal for Mako. Sometimes whirlwinds that send sharks flying turn out to be monster hits.

Fool contributor Keith Speights has no position in any stocks mentioned. The Motley Fool recommends Intuitive Surgical and MAKO Surgical. The Motley Fool owns shares of Intuitive Surgical. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

MAKO Surgical Corp. Stock Quote
MAKO Surgical Corp.
Stryker Corporation Stock Quote
Stryker Corporation
$223.12 (2.34%) $5.11
Intuitive Surgical, Inc. Stock Quote
Intuitive Surgical, Inc.
$238.37 (1.00%) $2.35

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