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Categorized | Equities

Cyberonics and Sorin merge in $3bn deal


Posted on February 26, 2015

Cyberonics' Vagus Nerve Stimulator pulse model 102©AP

Cyberonics of the US has agreed to merge with Italy’s Sorin to form a medical devices company with a combined equity value of nearly $3bn, which will be domiciled in the UK under a lower-tax regime.

Shares in Cyberonics jumped almost 25 per cent to $75.29 in Thursday morning trading in New York, with Sorin up 32.5 per cent at €2.91.

    The transaction, the second-largest US-Europe deal so far this year, underscores US companies’ continued appetite to strike deals that allow them to relocate to a lower tax jurisdiction despite a White House crackdown on so-called tax inversions.

    Executives at the two companies said that the decision to unite was driven by strategic interests rather than tax advantages. Yet the relocation to London will also help them cut their tax bill substantially as UK corporate tax is 21 per cent compared to 35 per cent in the US.

    “As one company we will be able to leverage our combined strengths, capture new opportunities and create new solutions to benefit patients and healthcare professionals alike,” said André-Michel Ballester, chief executive of the Milan-based company.

    The Cyberonics-Sorin combination, which will have a strategic presence in over 100 countries with approximately 4,500 employees, will apply for dual-listing on Nasdaq in New York and the London Stock Exchange.

    After the all-stock transaction is completed Sorin’s shareholders will own approximately 46 per cent of the combined company, while Cyberonics shareholders will control about 54 per cent, on a fully diluted basis.

    The combined company would have pro-forma revenues of approximately $1.3bn and is expected to be cash accretive to all shareholders from 2016, the company said in a statement.

    Houston, Texas-based Cyberonics, which develops medical equipment for the treatment of epilepsy and sleep apnoea, said the merger will help it bolster its presence in the growing business for the treatment of cardiovascular diseases.

    Mr Ballester will become the chief executive officer of the “NewCo” — a name for the new company has yet to be agreed — and Cyberonics’ Dan Moore will become the non-executive chairman.

    “While each company has a strong record of execution on its own, the geographic diversification, scale benefits and strong financial profile of the combined company will create tremendous new opportunities to drive growth and build significant shareholder value,” Mr Moore added.

    A rush of tax inversion deals from US groups seeking to lower their tax rates by buying foreign companies contributed to a frenzy of deal making in 2014, especially in healthcare, where M&A activity added up to $412.5bn out of a global total of $3.6tn.

    The wave of tax-driven deals came close to a standstill after the Obama administration made it harder to pursue fresh inversions but bankers focusing on tax structures said their clients were still looking for similar deals.

    “The logic has changed . . . now the deal is driven by strategic interests and then they think about whether they can also go for a tax inversion,” said a banker who has worked on scores of inversions.

    Rothschild is serving as financial adviser to Sorin Group, and Latham & Watkins is serving as its primary legal adviser. Piper Jaffray is serving as financial adviser to Cyberonics, and Sullivan & Cromwell is serving as its legal adviser, with Legance advising Cyberonics on Italian law matters.