Smith & Nephew Settles With ArthroCare Shareholders

United Kingdom-based Smith & Nephew plc is dipping into its pockets again for the merger with ArthroCare Corp.

The orthopedic heavyweight will pay $12 million to settle lawsuits filed by ArthroCare Corp. shareholders who took legal action because they believed the proposed $1.7 billion takeover was undervalued.

In early February, Smith & Nephew said it would pay $48.25 a share in cash for Austin, Texas-based ArthroCare. ArthroCare investors alleged in lawsuits filed in Delaware Chancery Court in Wilmington that the offer didn’t meet what they feel the company’s value ought to be. The agreed upon price was 6.3 percent more than Arthrocare’s closing level Jan. 31 in Nasdaq trading. ArthroCare rose above the takeover price, indicating some investors might be speculating on a higher offer.

Arthrocare’s shareholders will vote May 8 on whether to approve the proposed acquisition.

Smith & Nephew settled to avoid the “inconvenience, expense, risk, and distraction of further litigation,” according to court papers filed on April 10. Company officials deny all allegations of wrongdoing or liability.

The accord needs court approval and legal fees won’t come from the settlement fund, Smith & Nephew said.

ArthroCare reported $377.9 million in revenue for 2013. It reported a $4.8 million increase in fourth-quarter revenue—$101.7 million compared to $96.9 million a year earlier. The company’s quarterly earnings grew by $1.7 million, to $16.8 million from $15.1 million a year earlier.

The deal gives orthopedic giant Smith & Nephew products for minimally invasive surgery used in sports medicine, which is a sector that’s growing faster (and with less price pressure) than traditional knee and hip replacement.

ArthroCare makes products used in arthroscopic surgery on shoulders and knees. Sports medicine typically involves minimally invasive soft-tissue surgery from sports or work-related injuries. The company specializes in soft-tissue surgery. It makes devices, instruments and implants that improve surgical procedures, including a radio-frequency technology that, according to the company, dissolves soft tissue with less damage than traditional heat-driven processes.

For recent data on the sports medicine market and arthroscopic procedures, click here for recent breaking news.