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Kyphon Buys Medical Firm

The deal is initially valued at $525 million.



, a maker of medical devices, set plans to acquire privately held St. Francis Medical Technologies, sending its shares higher Monday.

Kyphon will buy St. Francis for $525 million in cash, plus additional revenue-based contingent payments of up to $200 million. Any contingent payments won't be made before 2008.

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Pending regulatory approval, Kyphon expects to close the deal in the first quarter. Upon closing, Kyphon will incur an estimated charge of roughly $35 million to $50 million for acquired in-process research and development expenses.

Shares of Kyphon gained 23.1% to $41.27.

While the company says it's too early to determine the exact impact on next year's earnings, the transaction will likely be "significantly dilutive."

Excluding the in-process R&D charge, Kyphon believes the acquisition will cut the company's bottom line by 15 cents to 20 cents a share in 2007. Stripping out the charge and the noncash amortization of intangibles, the company expects the deal to be neutral or better, possibly adding 10 cents a share to next year's adjusted earnings.

Starting in 2008, Kyphon says the transaction should "significantly" add to its earnings.