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 the neuromodulation medical device maker Cyberonics (UNKNOWN:CYBX.DL) jumped by more than 25% earlier today after the company announced better than expected fiscal third quarter sales and earnings and reported that it would merge with Italian based rival Sorin SpA in a potential tax savings deal.
So what: Cyberonics' fiscal third quarter sales totaled $72.1 million, which was slightly better than expectations, and its fiscal third quarter EPS reached $0.59, which beat Wall Street forecasts by $0.02.
The fiscal third quarter results were 9% better year-over-year on the top line and 16% better than last year on the bottom line.
The growth came thanks to increasing demand for the company's vagus nerve stimulating AspireSR generator and a solid performance overseas. During the quarter, ex-currency international volume and sales improved by 18% to $14.5 million from a year ago, with the Aspire SR generator representing 21% of those overseas sales.
In addition to reporting solid earnings, the company also outlined details of its $2.7 billion planned merger with Sorin.
The link-up will result in Cyberonics' headquarters shifting from the U.S. to the United Kingdom, and while Cyberonics hasn't outlined what it expects to save in taxes from the shift, the company's effective tax rate was 31.3% last fiscal year, and that's well above the U.K.'s 21% corporate tax rate. Exiting the deal, Cyberonics investors will own 54% of the newly combined company, and Sorin will own 46%.
Now what: The combined company will have $1.3 billion in sales of medical devices that are used to treat epilepsy, depression, and heart disease. Although we don't know what the tax savings from the deal will be, the company has indicated that it thinks it can shave $80 million in costs by 2018 and that the deal will be EPS accretive by 2016. Since overseas markets only account for about 20% of Cyberonics' sales and U.S. markets only represent about 23% of Sorin's sales, the merger should provide plenty of new cross-selling opportunities that could boost sales over time. For that reason, Cyberonics may be worth keeping tabs on.