Updated from 3:01 p.m. EST

Genzyme

(GENZ)

said Monday it would buy

Biomatrix

(BXM)

in a deal valued at about $700 million.

The deal will create a large biosurgery company that will combine two subsidiaries with Biomatrix and trade independently as a tracking stock.

Biosurgery is a growing trend among surgeons to use solutions and gels to enhance or replace traditionally invasive surgery.

Under the terms of the deal, Biomatrix, a New Jersey-based biomedical company, will own 47% of the newly formed company,

Genzyme Biosurgery

. Biomatrix's shareholders will receive $37 in cash or one share of the new unit. Genzyme said it would pay up to $245 million in cash.

Two publicly traded Genzyme subsidiaries --

Genzyme Tissue Repair

(GZTR)

and

Genzyme Surgical Products

(GZSP)

-- will be combined to form Genzyme Biosurgery.

Shareholders of Genzyme Tissues Repair will own about 27% of the new company, while Genzyme Surgical Products shareholders will own 26%. Genzyme Tissue Repair shareholders will receive 0.3352 share and Genzyme Surgical Products shareholders will receive 0.6060 share of Genzyme Biosurgery stock for each share of their stock.

Shares of Biomatrix rose 1 1/4, or 4%, to close at 35 9/16. Genzyme Tissue Repair, which makes artificial skin for burn viscitims, rose 1 3/4, or 17%, to 10 11/16. Genzyme Surgical Products, maker of medical devices, jumped 2 7/16, 15%, to 18 15/16. The parent company, Genzyme, fell 5/8, or 1%, to 59 3/4.

"Biomatrix's stock has run up nicely and this is a good way to lock in those gains," said Tim Chiang, an analyst at

Bank of America

who rates Biomatrix a strong buy.

The deal did not surprise Chiang, whose firm has done no underwriting for the company. "They have been looking for a buyer, Balazs has been looking to cash out," said Chiang of Dr. Endre Balazs, M.D., Biomatrix's co-founder, chief executive officer and chief scientific officer, who is 79 years old. Chiang added that there would most likely be no Biomatrix management left at the new company within a couple of years.

Biomatrix's stock, which has always been volatile, had run up 38% in the past week. "The real premium for the deal probably leaked out in the past week," Chiang noted. "This move probably caught a lot of short sellers by surprise, and there were a lot out there." Chiang thinks that those who shorted the stock will probably have to wait to see if shares of the new company plunge to buy back those shares.

The new company will focus on the growing markets for bio-orthopedics and cardiothoracic surgery, executives for the companies said in a conference call.

Genzyme's chairman and chief executive, Henri Termeer, said in a statement that the new entity would make a strong platform for innovation and sharpen its focus in key areas.

The new company will start with a portfolio of 22 marketed products and 10 more in development with a combined market capitalization of $1.3 billion from Friday's close. Biomatrix's lead drug, Synvisc, a treatment for knee cartilage, will anchor the new company's revenues. Cardiothoracic surgery products from Genzyme Surgical Products will be the next largest source of revenues.

"Our companies share a common strategic vision to lead through innovation in the fastest-growing segments of the biomaterials market for a broad spectrum of surgical products," Balazs said in a statement. "We believe our combined products on the market and extensive pipeline of products will keep us at the forefront of these therapeutic fields and will provide significant competitive advantages.''

Duke Collier, president of Genzyme Surgical Products, will become president of the new company. Collier said in a conference call that pro forma revenues for Genzyme Biosurgery would be in excess of $250 million for 2000.

The transaction is expected to be completed by the end of June.