In a situation like this, the question is who would be paying the damages if the suit is successful? Unless the directors or officers will be paying themselves or from their own insurance and do not have a right of indemnification from the company, the company itself will pay, which means the owners will pay.
I suppose the wealthy shareholders that join the suit will end up funding less of the settlement when netted against any amounts received so between the shareholders this tends to allow the rich shareholders to suck blood from the less sophisticated shareholders that do not join the suit, but as a whole the shareholders as a class own a smaller company after the payment while only a portion of the payment reaches the shareholders that sued after the attorneys take their 33% contigency fee. Economically, the suit is a great scam in which one group of shareholders is suing another and in the end the suing shareholders sacrifice 33% of the value of the settlement to the attorneys in excahnge for getting a disproportionate amount of company assets that are by definition taken from all shareholders. The disappearing assets go to the attorneys.
So, if, like me, you are not joining a suit, not only are those who are suing affecting the price of the stock, thereby shrinking the pie, but they are also taking part of your piece of that shringking pie for themselves. And my friends wonder why I am reluctant to tell people I am a lawyer!
While I have not seen any evidence that Jon is involved in many years, his interest in Stryker is still in excess of a billion dollars. I would disagree that he has no interest in how the company does.
Longs are not getting reamed unless they sell, which would mean they are not in fact longs. So unless the price stays down here, remember he who laughs last, laughs best . . . while he who LHFAO just loses his #$%$.
The 5% reduction in force was announced more than a year ago (long forgotten by the time it would be political spin). I hope Stryker is still a growth company, but it had to address the additional cost of an excise tax on US sales of its devices, which it chose to do with a reduction in force. Just as elections have consequences, so do taxes.
"The thought of opening up China as a customer is doubtful."
Why would a country with a huge population that puts an incredible amount of stress on the knees via squatting and kneeling and increased standard of living ever represent a potentially viable market for low-cost implants produced in country? Good point.
Seeing a lot of bulletin board posts that are not on topic? This is another. Please feel free to leave cryptic messages thanking me; asking me to keep it coming or asking me to add you for the next 3 weeks.
Sorry to be so disruptive to spammers. Its getting so that your spam is getting bogged down in spam.
Sincerely, Mr. Tungginczeek.
No info on the resignation. I was very surprised. I believe, however, that Hartman is a serious contender to replace Big Mac, and I think he was being groomed for this position all along, though I do not think this timing was contemplated.
Consider the fact that his background is Aerospace engineering or something like that, and until he assumed the role of CFO he had not really been a financial guy. Also, his appointment to CFO was accompanied by the appointment of a Chief Accounting Officer (a new position). I remember thinking when he was appointed that that CFO must be filling out his dance card for the top spot.
Can anybody provide intelligence on his track record? In earlier management roles, especially leading Instruments, how did components for which he was responsible perform?
The bottom line is that Synthes was on the block and their executives are going to jail. In that situation, talented sales reps are naturally going to head to the environment that they think provides the best fit - most likely a competitor in the same business. Their most valuable asset is their relationships and those will follow the rep by definition, non-competes etc. notwithstanding. That is the definition of relationship and why it is so huge in this business.
I would not want to be the attorney arguing that the underhanded sales reps took advantage of Synthes, the paragon of virtue. Their Swiss logic has as many holes as their cheese but doesn't sit in the stomach nearly so well.
One more thing. I always view share buy-backs as an admission that the company has nothing better to do with the money if it is in a cash-rich position, and a desperate attempt to prop up share price if it is not.
The fact that sales are decreasing is somewhat troubling, but on the other hand, if sales were going through the roof, Boston Scientific would not sell. I am sure SYK believes they can grow the business, and, based on the press release, I would expect either to see some rationalization of the sales force, or a bigger black bag for legacy and acquired sales forces (or possibly both).
The acquisition appears to be sound, but only time will tell if they paid the right price. Like you, I would have hoped that doing a cash deal that is not dependent on financing would have translated into a discount (maybe it did). If the business is truly neutral to accretive in its first year, then the price would appear to be a wise investment. If the top line were to grow by even the rate of SYK's mature business lines, the return in subsequent years will be a whole lot better than cash sitting in the bank, and I am sure SYK did not buy the unit because they expect it to grow at that pace.
Everything is in the execution, though. So,while I am cautiously optimistic, I will be watching the integration and growth of this segment.
Good call on the raid, Eleven84, because companies that shred generally hold off for months until the investigation is complete and the company is indicted!
Thanks for your cautionary post. I agree that Stryker and investors should not be cavalier in their assessment of this indictment, but I think the link and settlements do very little to substantiate your premise, and almost certainly overstate the economic risk for past sins (I agree that the indictment also impacts Stryker's reputation, which I believe has the potential to develop into a real economic threat).
The list of settlements relate to all healthcare fraud, and specific examples at the link address price fixing etc., not the off-label use at issue in this case.
My understanding is that Stryker had approval for a very limited use based on a compassionate care context, i.e. other treatments of long bone fractures were not working, and that pricing was limited to cost recovery (although given the research that went into OP-1 since 1986, or whenever it started, that would still allow a healthy price). I am a financial guy so admittedly my understanding may be incorrect or the approval may have expanded.
If my understanding is correct, however, it sounds to me like the allegation in the indictment is that Stryker sales reps and management encouraged off-label use. My understanding is that off-label use is the relatively common practice by doctors to use devices and pharmaceuticals for applications other than those for which they are approved. The issue for the seller of the product is when does the exercise of informing the doctor and responding to his or her questions stop and cross over into encouragement or promotion of off-label use. Regardless of the outcome of this indictment, I find it hard to beleive that Stryker sales reps duped a bunch of doctors into compromising the care of their patients in order to administer an experimental treatment approved for limited use. I think that is what the previous poster may have been referring to when he or she said these suits are seldom successful.
Also, the amount of any settlement, even if Stryker is found liable, would not be in the ball park of those listed in your link because I believe the underlying sales are negligible relative to the products at issue in the settlements listed in your post.
Having said all that, for me, the important issue is that Stryker establish that it does not operate that way so there is no damage to its reputation.
I know no one from Stryker will be able to comment, but I would be interested in hearing thoughts from other informed parties that understand the nature of the charges in the indictment or can shed more light on the approval Stryker had and the practice of off-label use, sales for off-label use and the sellers responsibility in that context.
Not to mention that the rumored $65 would hardly constitute the "stratosphere" for family, management or long-term investors. I wouldn't be surprised to see the price hit $65 before the end of 2010 without any buy-out rumors. That would represent a TTM P/E (in 2010) of only about 20. Hardly a level to make an attractive offer to most investers, considering SYK's historical and forecasted future earnings.
I don't know who or how the Kalamazoo promise is being funded, but there are not a whole lot of options. The promise is funded by a consortium of donors, but every graduate from Kalamazoo schools with a C average can get all his or her tuition to a Michigan university fully funded. There is some requirement that the student have been in the Kalamazoo school system for a significant time to get the full funding, but the program is truly unprecedented.
Even more admirable to me is the fact that the donors have remained anonymous over the last several years, although the choices of who has the wherewithall to fund such a generous program are relatively limited. Also, I believe Rhonda's husband was a teacher in the public school system, as was John Brown's wife.
So the post may not be accurate, but I wouldn't bet against it.
Yes, that is old news. Patients have moved with the technology and are now using staples on Stryker.
I think you are piling on a little bit, though I agree everything you identified needs to be addressed, and how it is addressed will ultimately show strength or weakness in the current management team.
The way I read it is the regulatory issues are first among my concerns because they happened during the SM's watch, and the issues as well as the response are and will continue to be crucial to the health of the company.
My other principle concern is the response to the current economic crisis. Apart from every radio talk show host and every politician, no one else foresaw a crisis as cataclysmic as what we are experiencing. Furthermore, we have not had enough time to see results or the lack thereof from the measures the SM management team has taken since the crisis just hit in October. I am moderately encouraged that SYK realized constant currency growth even in the "knee-jerk cut all spending and postpone all non-essential procedures" time period following the onset of our current economic crisis. I am in no way suggesting that management has deftly handled the crisis, however. The jury is out and will remain out for some time.
Far less important is the tax. As I said, SYK is under continuous audit. If the IRS does come after SYK for taxes, my guess is that will actually have to go into the JB column because the periods under review are generally several years in arrears, and the issue identified in the conf call, i.e. cost sharing arrangements with Irish factories. I remember when the tax rate came down and the reason cited in annual reports and in analyst calls was Irish manufacturing, might also have included PR manufacturing. This rate movement was definitely during the JB years.
Finally, I never considered OP-1 the salvation of the company, at least not in the last 3 years. I took an economic interest in the company back in 1995. I recall that at that time SYK was already telling the market to expect delays in the approval of OP-1, meaning that the product has been visible in some measure for nearly 20 years. I also remember the long awaited rejection on the approval for non-mending long bone fractures, definitely pre SM. SYK regrouped and got some kind of compassionate use approval and tried again on the spine, but by that time the investment community was baking zero economic impact into their numbers as was SYK when they provided their guidance. I suspect the failures with OP-1 are attributable to a number of reasons, including a proven track record of poor handling. I remember when the product was classified as a device, which was heralded as a major victory because it put SYK in familiar territory. In retrospect, I wonder if that was not a mistake because it put the product in unfamiliar territory for the Device people at the FDA. At this point, however, "what went wrong?" is nothing more than an academic questions as OP-1 has been presented and accepted as a long-shot that would provide some serious icing on the cake if it ever came through.
That is my take based on about 14 years of pretty close attention.
I am aware that the regulatory issues and the economic downturn could also define the weakness of the management team if that is the case. This is the opportunity for them to shine or crash and burn.
I can't say that I don't share some of your concerns. I think the way Mac and Co respond to the regulatory issues and the economic downturn will be what defines their strength as a management team.
By way of clarification, the IRS did not start investigating them in the same way the FDA does. Any company SYK's size is under constant audit by the IRS, it is part of their coordinated audit program. They finish up one 2 or 3 year time period and start looking at the next. A notice of proposed adjustment just means the IRS and the company disagree about what income should be reported. I have seen many such notices in my 22 years in the financial arena. What is noteworthy, however, is that it was mentioned.
On the OP-1 study, I agree with the poor handling, but I guess the handling has been less than stellar for more than 20 years. I believe SYK first started discussing this product in the late 80s. I would certainly like to see it handled better, but I think it has already been factored into the price along time ago, and if there ever was good news, it would create a significant and unexpected upside spike in the price.
As to the $50 price, that would still provide a PE of approx 16. I cannot imagine JNJ would not do a deal if they could. I would not find this an attractive offer, and I hope management would not either. Of course the anti trust authorities would frown on nearly any deal.