St. Jude to buy heart device company for $3.4 billion

Published 1:01 pm Wednesday, July 22, 2015

MINNEAPOLIS – Medical device maker St. Jude Medical announced a definitive agreement Wednesday to acquire California heart-device firm Thoratec for $3.4 billion.

The cash deal would be a 40 percent premium over Thoratec’s 30-day average trading price, according to a joint news release Wednesday morning.

The deal, the largest ever for St. Jude, based in suburban Minneapolis, is expected to close by the end of the year. But the terms give Thoratec a 30-day window in which to shop for another buyer and pay a $30 million termination fee.

Thoratec makes a type of implantable mechanical circulatory support system called a left ventricular assist device, or LVAD, which helps the heart pump oxygenated blood throughout the body in patients with end-stage heart failure. Unlike pacemakers and implantable defibrillators – longtime staples of St. Jude’s product line – LVADs take over much of the physical work pumping oxygenated blood into the body’s main artery.

Thoratec reported a $50.4 million profit on $477.6 million in revenue for the 12 months ended Jan. 3. That’s down from a $73.3 million profit on $502.8 million in revenue for the previous year.

St. Jude CEO Dan Starks told stock analysts Wednesday that the company is not paying too much for Thoratec given the internal data that has been shared confidentially, and the global sales potential for heart-failure devices that may cost as much as $100,000 apiece.

“This is a long term play,” Stark said. “The short term is a pot-sweetener. . We think the heart-failure space, long-term, is a place that we are winning and have an opportunity to do even better.”

He also said St. Jude is satisfied with its existing portfolio of new devices, and growth forecasts are not forcing it to the table to buy Thoratec.

“That is our position of strength,” Starks said. “We would not want to be pressured to do a bad acquisition, to pay too much or stretch too much for an acquisition.”

The deal announcement came as St. Jude reported quarterly earnings Wednesday. The company posted a decline in sales because of swings in international currency rates, but it beat earnings forecasts in the three months ended July 4.

St. Jude reported adjusted diluted earnings per share of $1.03, beating the analysts’ consensus estimates by 3 cents and exceeding the same quarter last year by a penny, after accounting for restructuring and other costs.

But like many U.S.-based companies that sell goods overseas, sales of medical devices in weaker currencies like the euro hurt the Minnesota manufacturer’s top-line revenue when reported in U.S. dollars.

Net sales were $1.41 billion in the quarter, a 3 percent decline.

The company said foreign currency differences shaved $118 million from sales. Without those differences, the quarter would have been a 6 percent increase.

St. Jude also released updated earnings guidance for the year.

Although currency impacts are likely to be more severe than expected for the full year, company officials said their constant-currency earnings per share forecast is in a range of $3.96 to $4 per share.

St. Jude shares were up 50 cents in morning trading Wednesday, to $77.41, a 0.6 percent gain. Thoratec shares, which had jumped 18 percent Tuesday after Bloomberg reported talks that could lead to a deal, were up another 9.5 percent early Wednesday, to $63.08.