Italy’s Sorin spa, a global medical device company and a leader in the treatment of cardiovascular diseases, will merge with US Cyberonics Inc, a medical device company with core expertise in neuromodulation, the two companies announced yesterday (download here the press release).
The merger will create a new global leader in medical technologies with a combined equity value of approximately 2.7 billion dollars based on the closing price of Sorin and Cyberonics shares on 25 February. It will be a no-cash deal as it will be structured as an exchange of shares.
The combined company will have pro-forma revenues of approximately 1.3 billion dollars, and the merger is expected to drive significant cash flow generation. The proposed transaction is expected to be cash eps accretive to all shareholders from 2016. The merger presents the opportunity to achieve significant revenue and cost synergies. Approximately 80 million dollars of annual pre-tax synergies are expected to be delivered by the end of calendar year 2018
The all-stock transaction will be implemented through two mergers, which will occur in immediate succession: first, Sorin will be merged with and into newco and immediately thereafter a wholly owned subsidiary of newco will be merged with and into Cyberonics. At the closing of the transaction, Cyberonics shares will cease trading on NASDAQ and Sorin shares will cease trading on the Borsa Italiana.
Sorin spa is now controlled by private equity investors Mittel spa and Equinox Two sca (founded by Salvatore Mancuso), through Bios spa and Tower 6 Bis sarl. Mittel and Equinox together own a 25.6% stake in Sorin’s shareholders capital.  Cyberonics and Sorin will combine under a newco, which will be domiciled in the UK and will apply for dual-listing on Nasdaq and the London Stock Exchange.
The news made Sorin’s shares to skyrocket highs yesterday in Milan closing at 2.9 euro per share (+34.3%), while Mittel closed at 1.557 euro (+15.42%) and Cyberonics ended at 66.6 dollars per share (+10.32%).
For Sorin shareholders, the exchange ratio implies a per share valuation of Sorin that represents approximately 14.2% premium to Sorin’s closing share price on 25 February, 2015, the last trading day prior to the parties announcing the agreement. Following completion of the transaction, assuming no withdrawal rights under Italian law are exercised by Sorin shareholders with respect to the merger, Sorin shareholders will own approximately 46% of newco and Cyberonics shareholders will own approximately 54%, on a fully diluted basis. As for Mittel and Equinox, they will hold a 11.5% stake together so that they will be the major shareholders in the company,
The deal comes after Sorin had been attracting interest from many potential investors in the last few years. In Summer 2012 rumors were that Charterhouse had been in order to buy the Italian company and that other private equity funds too might be interested to the deal such as Apax and Cinven, but  also Italy’s Government sponsored Fondo Strategico. Two years before, in 2010, Sorin’s shareholders held exclusive talks with a group of potential investors (Ares Life Sciences, Essex Woodlands Health Ventures, Intesa Sanpaolo and Alpha Private Equity), but then negotiations fell apart.
André-Michel Ballester, Chief Executive Officer of Sorin, will serve as Chief Executive Officer of newco and Dan Moore, Chief Executive Officer of Cyberonics, will become non-executive Chairman.
Rothschild advised Sorin on the deal as well as Latham & Watkins on the legal issues. Piper Jaffray was the financial advisor to Cyberonics, while Sullivan & Cromwell acted as legal advisor.(and Legance on Italian law issues). Unicredit advised Equinox while Leonardo&Co was advisor to Mittel.
