Milan-based Sorin SpA, a global medical device company that specializes in cardiovascular disease treatment, and Houston-based Cyberonics Inc, a medical device company with core expertise in neuromodulation, will merge. The merger plan will create a medical technologies company with a combined equity value of approximately $2.7 billion (€2.4 billion) based on the closing price of Sorin and Cyberonics shares on February 25, according to the companies.

The proposed transaction has been unanimously approved by the boards of directors of both companies. Under the terms of the transaction, Sorin and Cyberonics will combine under a newly formed holding company, “NewCo,” which the parties will name prior to closing. Each Cyberonics stockholder will receive one ordinary share of NewCo for every share of Cyberonics owned. Each Sorin shareholder will receive a fixed ratio of 0.0472 ordinary shares of NewCo for every Sorin share owned. 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.

The combined company will be a major player in cardiac rhythm management, especially in Europe and Japan, according to a press release issued by the companies. NewCo will have several promising opportunities focused on multibillion dollar markets, including complementary research programs addressing heart failure, with an initial commercial launch in Europe anticipated in the coming weeks. Both companies bring minority equity investments that are complementary in different forms of sleep apnea. Sorin, in addition, has opportunities that address mitral valve regurgitation.

Andre-Michel Ballester, Sorin CEO, will serve as CEO of NewCo, and Dan Moore, Cyberonics CEO, will become non-executive Chairman.

Ballester says in a release:  “I am delighted to announce this transformational merger between Sorin and Cyberonics, which we expect to create significant value for shareholders. As one company, we will be able to leverage our combined strengths, capture new opportunities, and create new solutions to benefit patients and healthcare professionals alike. This is particularly exciting for our employees, who will be able to share technical expertise and innovate faster, ensuring that we serve our customers by remaining at the forefront of new product development which continues to be the foundation of our success.”

Moore says: “This transformational transaction maximizes both companies’ strengths and leadership positions for the benefit of patients and our shareholders. Sorin is an ideal partner, given its heart failure programs and the ability to combine Vagus Nerve Stimulation with cardiac rhythm management technology. Sorin’s well-established international operations are expected to accelerate our epilepsy growth strategy by enabling us to reach a larger number of potential new patients in the underpenetrated markets outside the US while integrating Sorin’s technology expertise into future neuromodulation products. While each company has a strong track record of execution on its own, the geographic diversification, benefits of scale, and strong financial profile of the combined company will create tremendous new opportunities to drive growth and build significant shareholder value.”

Strategic Rationale

The potential combination of product development, clinical, and regulatory expertise will accelerate time to market across worldwide geographies and will leverage the combined group’s extensive relationships with healthcare professionals globally, as well as patient education and awareness initiatives.

In particular, NewCo will have several exciting opportunities focused on three multibillion dollar product categories: heart failure, sleep apnea, and percutaneous mitral valve. In heart failure, NewCo will have promising products with European market entry starting as early as 2015. Cyberonics recently received CE Mark approval of its VITARIA device delivering autonomic regulation therapy for the treatment of chronic heart failure and will commence a limited market launch in Europe in the coming weeks. Recently, Sorin announced the first successful implants of its Equilia Vagus Nerve Stimulation system for heart failure patients. NewCo is expected to benefit from the developing market for active implantable treatments for sleep apnea with investments aimed at the under-addressed obstructive sleep apnea (OSA) market, and also in central sleep apnea (CSA), recently launched in selected European countries. In addition, NewCo is expected to have new percutaneous mitral valve replacement/repair products with estimated initial market entry in 2017.