UBS ups target for Smith & Nephew, adds stock to M&A Watch List

30th May 2014 10:14

Smith & Nephew (S&N) is a "minor player in a consolidating market", according to UBS,which said the medical device maker needs to build its scale quickly or risk being taken over.As bid speculation continues to dominate sentiment surrounding the stock, the bank has raised its target price for the shares from 1,000p to 1,100p and kept a 'buy' rating.UBS said it assumes a one-in-three chance of S&N being acquired by one of its competitors in the next two years and derived a "putative takeover [bid price] in excess of 1,300p, a possibly conservative estimate".US peer Stryker, in a statement to the Takeover Panel, was forced to deny reports earlier this week that it was working on a bid for the company. However, its boss yesterday confirmed in an interview on Thursday that the company had in fact been in the early stages of considering a transaction but was not ready to make an offer.UBS has added the stock to its 'M&A Watch List'."Scale appears to be increasingly important in the orthopaedic space," UBS Analyst Ian Douglas-Pennant said. He said that S&N lacks the size of larger rival Johnson & Johnson (J&J) and after the recent merger of competitors Zimmer and Biomet."At its recent Medical Devices day J&J spoke at length about the need for scale within the orthopaedic space whilst Zimmer's primary rationale for its acquisition of Biomet appears to be the need to gain 'critical mass'."Even some of Smith & Nephew's own actions appear to point to a tacit admission that it needs to build scale; it bought Arthrocare to widen the breadth of its offering and is shifting investment away from hips and knees in developed markets."