Stryker Expands in Spine with Surgical Dynamics

On the face of it, Stryker Corp. 's purchase of spinal cage company Surgical Dynamics Inc. doesn't seem all that impressive [See Deal]. After all, Surgical Dynamics has been on the market with no takers for years, almost since the day its parent United States Surgical (now a division of Tyco Healthcare Group ) was acquired by Tyco International Ltd. in 1998 [See Deal]. And certainly foremost among the concerns of any potential acquirers had to be both the patent litigation that Surgical Dynamics was facing and, more generally, the disappointing fall-off of the spinal cage market beginning in the late 1990s. Indeed, Stryker's purchase price of $135 million pales before the valuations put on other innovative spinal companies: one month after its IPO, Kyphon Inc. 's market cap stood at $650 million [See Deal], while Oratec Interventions Inc. fetched $310 million in its recent deal with Smith & Nephew PLC [See Deal].

But people close to this deal say it may turn out to be a much better deal for Stryker than appears on its face. For one thing, Surgical Dynamics is,...