Medtronic To Boost Heart Failure Business With HeartWare Buy

Medical device major Medtronic plc (NYSE:MDT) has made a mega investment in a bid to expand its portfolio in the huge and expanding worldwide market of heart failure. The company recently entered into a merger agreement with Heartware International Inc. (NASDAQ:HTWR) , the innovator of less-invasive, miniaturized circulatory support technologies for the treatment of advanced heart failure.

Per the deal, Medtronic will acquire HeartWare for a total value of $1.1 billion. Both the companies’ board of directors has already unanimously approved the transaction. The acquisition is expected to be completed during the second quarter of fiscal 2016, subject to certain conditions.

However, following the announcement of this deal, shares of Medtronic witnessed a downtrend, dropping 1.06% by yesterday’s end.

Nevertheless, both the companies are looking forward to this impending bid as its successful completion will lead to the creation of a consolidated major in the global cardiovascular market. According to Medtronic, this transaction, while giving a huge boost to its heart failure portfolio, is in line with its mission of alleviating pain, restoring health and extending life, as well as its strategy to provide continuous flow of innovative products based on the patient’s condition and state of disease.

This merger will enable Medtronic to utilize HeartWare’s strong relationships with hospital customers and thereby help build a solid position and reputation in the marketplace.

We note that heart failure or congestive heart failure is a set of symptoms where the heart fails to pump adequate blood. Some injury or damage to the heart may lead to its failure.

Heart failure is an important area of focus for Medtronic as it remains a leading cause of hospitalization and death in the U.S. Further, its prevalence is on the rise, affecting more than five million people in the U.S. alone.

Apart from this, healthcare expenditure related to heart failure in the U.S. is approximately $39 billion a year, constituting a major portion of total expenses of the healthcare system. With the aging population, Medtronic estimates the number of heart failure patients to exceed eight million by 2030.

Accordingly, we are confident about the timeliness of this impending merger deal, which upon closing, is expected to significantly boost Medtronic’s Cardiac Rhythm & Heart Failure business within the Cardiac & Vascular Group in the coming days, and also provide a strong foothold in the global niche of heart failure.

The transaction is also expected to meet Medtronic’s long-term financial metrics for acquisitions. Currently, the company is not modifying its fiscal 2017 revenue or EPS guidance following this transaction. Medtronic also expects minimal to no net EPS dilution from this transaction for the first two years as it intends to offset the expected dilutive impact. The acquisition is likely to be earnings accretive in the third year.

Zacks Rank

Currently, Medtronic holds a Zacks Rank #4 (Sell). A couple of better-ranked stocks in the medical sector are ICU Medical, Inc. (NASDAQ:ICUI) and LeMaitre Vascular, Inc. (NASDAQ:LMAT) , each with a Zacks Rank #2 (Buy).