Medica settles $1B lawsuit

February 4, 2002 Posted: 1024 GMT

LONDON (CNN) -- Sulzer Medica,  Europe's largest orthopedics maker, soared after it agreed to settle a $1 billion U.S. lawsuit over faulty hip and knee implants.

Its stock rose 28.6 percent to 291.50 Swiss francs in early Zurich trading on Monday. The deal clears uncertainty over its U.S. business, which had been expected to file for Chapter 11 protection if claims ran out of control.

Sulzer Orthopedics, its Austin, Texas-based business, was forced to recall hip and knee joint implants in late 2000, after it became apparent that they could come loose due to lubricant impurities.

Sulzer Medica Chief Executive Officer Stephan Rietiker said the agreement "allows us to look confidently into the future."

The agreement foresaw a settlement of around $200,000 per patient. Sulzer Medica will pay $725 million toward the cost of the settlement, with the remainder coming from insurer Winterthur and former parent Sulzer.

Sulzer Medica's offer is made up of $425 million in cash, which it aims to cover from its cash flow. The remaining $300 million is to be raised via other methods, which would not dilute its stock, the company said.

Morgan Stanley Dean Witter analyst James McKean, raising his recommendation of Medica stock to "strong buy" from "neutral," told Reuters the deal removed a considerable negative weight from the valuation of the company.

Sulzer Medica said on Saturday the settlement was signed by all parties involved, and submitted to U.S. District Court Judge Kathleen O'Malley in Cleveland, Ohio.

There would be a final hearing on May 14, but Sulzer Medica said that broad support for the agreement by plaintiffs' lawyers made it hopeful that there would be only a minimal number of plaintiffs who will opt out of the agreement.