STJ ST. Jude Medical, Inc.

Greatbatch’s (GB) Electrochem division, which offers high performance commercial batteries, has inked a definitive pact to take over Oregon-based battery supplier Micro Power Electronics for roughly $60 million in cash. The deal also calls for assumption of debt and specific acquisition-related payments and expenses.

The transaction is expected to close by end-2011. Greatbatch plans to fund the acquisition with available cash and its existing revolving credit facility.

Micro Power supplies custom battery solutions to the portable medical, military and automatic identification and data collection markets. Its coveted product portfolio complements Electrochem’s offerings for the portable medical, energy, military and environmental industries.

The acquisition is expected to diversify Electrochem’s revenues by broadening its foothold in the portable medical battery market and stimulating growth in other key areas. Electrochem plans to retain Micro Power’s Oregon facility which employs roughly 200 people.

Micro Power is expected to generate roughly $70 million in sales in 2011. The acquisition is expected to be neutral to Greatbatch’s earnings (barring one-time acquisition related charges) in 2011 and 2012 and accretive thereafter.

Greatbatch is a leading producer and supplier of batteries, capacitors and components used in implantable medical devices. The company’s top customers include Boston Scientific (BSX), Johnson & Johnson (JNJ), Medtronic (MDT) and St. Jude (STJ).

Greatbatch’s smaller Electrochem division makes high performance batteries for use in oil and gas exploration, oceanographic equipment, seismic surveying equipment and aerospace. The division accounted for roughly 14% of the company’s sales in 2010.

Greatbatch has been acquiring complementary businesses over the last few years to boost sales. The company’s pipeline is healthy with a number of products currently under development that are expected to support growth in the long run. Moreover, Greatbatch continues to invest in developing medical devices for its major OEM clients.

We feel that operating results will be supported by strength at the company’s orthopedic business and strategic investments. Moreover, synergies from cost-cutting and restructuring initiatives are expected to support margin expansion. Our Outperform recommendation on the stock is backed by a Zacks #2 Rank, which translates into a short-term “Buy” recommendation.

 
BOSTON SCIENTIF (BSX): Free Stock Analysis Report
 
GREATBATCH INC (GB): Free Stock Analysis Report
 
JOHNSON & JOHNS (JNJ): Free Stock Analysis Report
 
MEDTRONIC (MDT): Free Stock Analysis Report
 
ST JUDE MEDICAL (STJ): Free Stock Analysis Report
 
Zacks Investment Research