Medtronic (MDT) agreed to buy Kyphon (KYPH) for $71 a share, or $3.27 billion, in cash.

Minneapolis-based Medtronic said shareholders of Sunnyvale, Calif., Kyphon will get a 32% premium to Thursday's closing price. Kyphon shares soared to a 52-week high earlier this week after the spinal health company was added to the S&P MidCap 400.

The transaction, which is anticipated to close in the first calendar quarter of 2008, is expected to be neutral to Medtronic earnings in the first full fiscal year after closing and accretive thereafter. Medtronic expects the merger to yield significant revenue, cost and tax synergies.

"We expect our combination with Kyphon to help accelerate the growth of Medtronic's existing spinal business by extending our product offerings into some of the fastest growing product segments and enabling us to provide physicians with a broader range of therapies for use at all stages of the care continuum," said Art Collins, chairman and chief executive officer of Medtronic. "Importantly, the combination will also enable more patients of all ages to receive the benefits of modern, minimally invasive spinal treatments earlier in their care, with life-style friendly options that are simpler, faster and less invasive than many traditional surgical treatments."

Medtronic said the transaction will be financed by a combination of cash on the balance sheet and debt.

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