Takeover talk sees S&N shares rise to record

The group, which has its woundcare arm based in Hull, risked the wrath of shareholders by failing to disclose the reported approach from US rival Johnson & Johnson before Christmas.

S&N, Europe's largest maker of replacement knees and hips, turned down the approach as inadequate, reports added.

J&J is considering whether to return with a higher offer, after its indicative bid of more than 750p a share was spurned as too low, reports said.

Smith & Nephew (S&N) declined to comment on the report but the company is coming under increasing pressure to issue a statement, following the sharp rise in shares.

Shares in the group hit a record high of 739p at one point yesterday – up 13.7 per cent from Friday's close. They closed up 9.5 per cent at 712p yesterday.

Public companies are obliged by takeover rules to inform the market of an approach if the news leaks and influences its shares.

J&J said it did not comment on "rumours and speculation." It has a medical devices division and owns a number of well-known UK household brands, including Listerine, Sudafed and Benecol.

S&N has been regularly tipped as a bid target for US rivals, such as privately owned Biomet and J&J. It also competes with orthopaedics firms Stryker and Zimmer.

Takeover speculation has helped fuel a lift in its shares since December. The group is seen as a fairly small player in the replacement joint industry and an attractive target for bigger rivals seeking a larger global presence. Sebastian Jantet, an analyst at Investec Securities, said a fair price for Smith looked to be around 900p a share, which would value the company at about 8bn.

He said: "Johnson & Johnson is a credible bidder, has plenty of firepower and with other parties likely to be interested, we think an offer of north of 900p per share is possible."

Panmure Gordon analyst Savvas Neophytou said a long-awaited bid for S&N was more likely from J&J than a deal with rivals Zimmer or Stryker, given J&J's record of doing deals.

"If J&J put their considerable muscle behind what S&N do, they would be able to drive growth beyond what S&N could do as a stand-alone business," he said.

He added he would expect a successful bid to be anything up to 10. "Anything short of 9, I find it difficult to see shareholders taking," he said.

However, analysts warned competition issues may make a takeover difficult. "The key issue in this event is untangling the potential antitrust issues that will raise their head regarding the respective position in orthopaedic surgery both in the US and Europe," said Mike Mitchell at stockbrokers Seymour Pierce.