St. Jude Medical to acquire Ventritex, Telectronics - St. Jude Medical Inc.; Ventritex Inc.; Telectronics Pacing Systems Inc

A week after calling off a smaller deal, St. Jude Medical (St. Paul, Minnesota) continued its diversification efforts with today's announcement of agreements being reached for the acquisitions of implantable defibrillator maker Ventritex Inc. (Sunnyvale, California) and pacemaker manufacturer Telectronics Pacing Systems (Englewood, Colorado).

The two new acquisitions broaden St. Jude's position in the cardiovascular device marketplace. When the deals are completed and the new companies are aligned with its Pacesetter (Sylmar, California) unit, the global leader in heart valves will have a complete line of cardiac rhythm management products, including the cardiac ablation catheter line of Daig Corp. (Minnetonka, Minnesota), added earlier this year.

St. Jude announced a week ago that it would not complete its previously announced deal to acquire Cyberonics Inc. (Webster, Texas), a developer of an implantable device for treating epilepsy. Analysts said then that the aborted deal meant St. Jude likely had more acquisitions pending.

The stock-for-stock Ventritex deal, valued at just over $500 million, is subject to approval by Ventritex shareholders and is expected to close in the first quarter of 1997. The proposed acquisition has been approved by the boards of directors of both companies.

In the other major deal announced today, St. Jude said it will acquire the Telectronics pacemaker business from Pacific Dunlop Ltd. (Melbourne, Australia), along with MedTel, an Asia-Pacific medical products distributor related to Pacific Dunlop, for a total of about $135 million in cash. The Telectronics agreement includes an earn-out provision tied to future sales that could result in as much as $40 million in milestone payments to Pacific Dunlop. Telectronics has been pummeled since early 1995, when the FDA temporarily banned U.S. sales of its pacemakers after several patient deaths were attributed to faulty pacemaker leads. That restriction was lifted this past June. The deal is expected to close before year-end.

St. Jude also announced a related $25 million deal to buy certain intellectual property rights from Intermedics Inc. (Freeport, Texas), a unit of SulzerMedica (Winterthur, Switzerland), as well as to settle existing patent disputes between Intermedics and Ventritex. "Don't underestimate the importance of the Intermedics deal," Jeffrey Barnes, vice president of research for Needham & Co. (New York), told BBI. "That was critical to the Ventritex acquisition because of pre-existing cross-licensing rights. What might have been a deal-breaking issue no longer is an issue."

Of the overall deal-making by St. Jude, which he described as "extremely complex,' Barnes said the acquisitions "make a lot of sense from the strategic standpoint, with St. Jude bolstering its No. 2 position in pacing and gaining immediate entree to the ICD market, where it was not even a player."

Larry Haimovitch, of Haimovitch Medical Technology Consultants (San Francisco, California), who closely follows cardiovascular product companies, told BBI the Ventritex and Telectronics deals "make St. Jude a full-service electrophysiology company." He said Ventritex will get St. Jude into the ventricular tachycardia market, which is the most rapidly growing of cardiovascular markets at about 25% growth a year," and the Telectronics deal strengthens the bradycardia market position it has held since buying Pacesetter from Siemens AG (Erlangen, Germany) early last year.

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