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WMGI to Sell OrthoRecon Unit

Zacks Equity Research

Orthopedic products maker Wright Medical Group Inc. (WMGI) recently revealed a definitive agreement to sell its OrthoRecon unit to MicroPort Medical B.V., a subsidiary of MicroPort Scientific Corporation. The deal is valued at $290 million payable in cash, subject to adjustments for working capital. The sale is expected to close in the third or fourth quarter of 2013.  

Wright Medical’s OrthoRecon unit has knee and hip implant products. The business had revenues of about $269 million in 2012. The company will classify the OrthoRecon segment as a discontinued operation starting from the second quarter.

Wright Medical’s foot and ankle business is doing well and the company is in the process of raising productivity. Post sale, Wright Medical will become a company with higher rate of growth and focus on Extremities. This segment comprises biologics, foot and ankle, and upper extremity and generated sales worth $214 million in 2012. WMGI expects to report positive EBITDA in 2014 with the possibility of a major expansion in EBITDA in the future.

The post tax proceeds, inclusive of transaction charges, for the company are expected to be approximately $260 million. Wright Medical plans to utilize the funds largely to pursue growth in the Biologics and Extremities units. The deal is contingent on standard closing clauses as well as shareholder approval at MicroPort.

Wright Medical’s prior guidance for 2013 is no longer valid. Consequent to the deal, Wright Medical will update its guidance at the second-quarter conference call slated on Aug 1, 2013. WMGI has provided the Extremity segment sales guidance in the range of $235 million to $240 million for 2013.

Orthopedics is one of the largest medical device market segments worldwide.  Our views on the company are moderated by intense competition from larger players and pricing pressure. 

The stock carries a Zacks Rank #3 (Hold). We expect other stocks in the industry like Align Technology Inc. (ALGN), CONMED Corporation (CNMD) and Steris Corp. (STE), each carrying a Zacks Rank #2 (Buy), to perform better.

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