Medtronic to buy Plymouth valve maker ATS Medical

Not so long ago, heart valves were considered a sleepy afterthought in medical technology.

No more. On Thursday, Medtronic Inc. announced it was acquiring Plymouth-based ATS Medical Inc. in a deal worth $370 million in cash and assumed debt. Pending regulatory approval, the acquisition could be consummated by this summer or fall.

With about $78 million in annual sales, ATS Medical is a leading maker of mechanical heart valves, as well as tissue valves and ablation products used to correct abnormal heart rhythms during surgery. Now part of a $1.5 billion market worldwide, valves are crafted from man-made materials or harvested from an animal, such as a cow or a pig.

For many years, repairing a malfunctioning heart valve involved patients undergoing open-heart surgery. Fridley-based Medtronic said ATS' portfolio will complement the offerings of two other companies it recently purchased for about $1 billion -- CoreValve Inc. and Ventor Technologies. Both are developing new, minimally invasive technologies to replace malfunctioning heart valves in patients.

Last year, Medtronic said it would exit the mechanical valve market because it didn't have ATS' technology -- a bi-leaflet valve that helps regulate blood flow in the heart. The ATS purchase should remedy that conundrum.

Until fairly recently, "no one paid attention" to the market, ATS Medical CEO Michael Dale said. "We thought that was wrong-headed."

Scott Ward, the president of Medtronic's cardiovascular business, said ATS' products are highly respected by heart surgeons. And Medtronic's sales prowess and marketing reach will help sell ATS products to customers worldwide, he said.

"ATS Medical is a well-managed company that has developed some outstanding products," Ward said. "But it is an expensive and difficult proposition to build a global distribution channel" to sell medical devices. Sales of mechanical heart valves are especially strong in emerging economics such as China and India, he said.

The acquisition will further bolster Medtronic's cardiovascular division, which reported $2.4 billion in sales last year. Since 2009, Medtronic has shelled out about $1.7 billion to acquire four new companies to build the overall business, which also includes heart stents in its portfolio. (The fourth company Medtronic purchased is Invatec, which is developing technologies to treat coronary artery and peripheral vascular disease. The $350 million Invatec deal was finalized last week.)

ATS Medical employs about 300 people, including 225 in Plymouth, Dale said. It's unclear how the acquisition will affect local operations, or his position. "Medtronic has made it clear that they want to build the business, not shut it down," he said.

Ward said some consolidation might be possible, "but we expect the growth of the business to hopefully offset any reduction."

Medtronic said it will pay $4 a share for ATS, about a 50 percent premium to Wednesday's close. On Thursday, shares of ATS shot up 54 percent on news of the acquisition, closing at $3.99 a share, up $1.40.

Piper Jaffray & Co. analyst Timothy Lee said in a note to investors Thursday that it's possible other bidders could surface, spurring a bidding war "given the potential strategic value of ATS Medical to larger medical device companies." (Other valve companies include Little Canada-based St. Jude Medical Inc. and Edwards Lifesciences.)

One person who has closely followed ATS' progress is Twin Cities med-tech pioneer Manny Villafaña, who founded the company in 1991. "I think it's a great acquisition for Medtronic," Villafaña said Thursday. "I'd like to see a little higher price -- you never know, there might be other bidders. They make a great valve."

Villafaña no longer has a financial stake in the company.

Janet Moore • 612-673-7752