Smith & Nephew shares jump 10pc on Stryker bid reports

Stryker planning a £13bn takeover of British rival Smith & Nephew, sending the latter's shares up 10pc

Nurses and surgical instruments
Smith & Nephew specialises in joint replacements and wound care Credit: Photo: Rex Features

Shares in Smith & Nephew spiked by almost 10pc on Wednesday following reports that its US rival Stryker is planning a £13bn takeover bid.

Stryker, which makes surgical implants, is looking at offering a 30pc premium to Smith & Nephew's share price, which rose to £11.80 on Wednesday morning, valuing the company at around £10.6bn. THe stock closed up 7.7pc at £11.73 on Wednesday.

An approach could be made within weeks, Bloomberg reported.

In May, Stryker boss Kevin Lobo admitted that he was in the early stages of considering an acquisition of Smith & Nephew but was not prepared to make an immediate bid. The statement put Stryker in a "cooling-off" period that prevented it from approaching the FTSE 100 company until November.

Stryker has held discussions on financing the deal, and already considered the competition issues of a tie-up, according to Bloomberg citing unnamed sources.

The UK's takeover rules state that when a potential bidder is in a cool-off period it can still actively consider an offer but it is banned from "taking any steps in connection with a possible offer for the [target] company where knowledge of the possible offer might be extended outside those who need to know in the potential offeror and its immediate advisers". As a result, it is widely accepted that talks must be kept to only dedicated advisers in order to keep leaks to a minimum.

The Michigan-based company is reportedly not weighing a so-called inversion deal - an acquisition which involves a US company moving its headquarters outside the country to escape high corporation tax rates at home.

While inversions surged in popularity in the early part of this year, a US Treasury clampdown in September scuppered a number of high profile deals, including AbbVie's abandoned tie-up with Shire, and stopped other potential deals in their tracks.

Analysts are divided over the strategic logic of a Stryker and Smith & Nephew tie-up. Morgan Stanley analysts noted that a merger would slow the US company's annual growth, which currently stands at around 5pc compared with Smith & Nephew's 3pc.

Analysts at Bernstein have, however, put the chances of a merger at more than a third, saying a tie-up could help cut costs at a time when the industry is facing intense pricing pressure. They also said Stryker could be keen for a merger to help it compete with the scale of the combined Zimmer and Biomet, two major US medical technology companies who announced plans to merge earlier this year.