Arthrocare's Buyout Value Looks Bloated

Since early March, when Arthrocare(ARTC Quote) suddenly decided to explore "strategic alternatives," the company has seemed eager to ink a deal.

On paper at least, Arthrocare looks like an attractive takeout target. The Austin, Texas-based medical device maker boasts a remarkable growth rate, especially in the lucrative spine space, and it has been reporting a solid profit for the past nine years.

Late last year, however, with Arthrocare riding high on yet another record quarter, short-sellers took direct aim at the company. At the time, Arthrocare had seen its spine sales almost double because of soaring demand for its disposable "SpineWands." But short-sellers claimed that Arthrocare had been leaning heavily on its DiscoCare division -- a firm suspected of supplying SpineWands for unnecessary surgeries -- to drive up that demand.

(In a special series last week, TheStreet.com took a close look at Arthrocare's booming spine business and its core sports medicine division alike).

Arthrocare has flatly denied that it faces any operational problems. The company insists that its technology is valuable and that its growth rate -- while admittedly high -- is both sustainable and real. Ultimately, it portrays itself as the innocent victim of an unfair attack by short-sellers looking to profit on declines in its share price.

Arthrocare is quite confident that it can sell itself, if it chooses to do so. The company's loyal shareholders believe the same. At this point, they are simply waiting for a larger device maker -- such as Stryker (SYK Quote), Medtronic (MDT Quote) or Smith & Nephew (SNN Quote) -- to come along and strike a deal.