Rumors hinting at the takeover of U.K.-based Smith & Nephew plc (SNN -Snapshot Report) by its U.S. rival Stryker Corporation (SYK - Analyst Report), dating back to May 2014, resurfaced this week. According to a latest Bloomberg report, a Stryker move for Smith & Nephew could come in as early as the next few weeks.

The renewed takeover speculation brought an early New Year cheer for Smith & Nephew shareholders as the company’s shares climbed nearly 9.4% to close Tuesday’s trading at $38.04. Shares of the British medical device maker continued their uptrend to close at $38.18 till the last trading session.

Stryker’s shareholders, on the other hand, celebrated with a comparatively lower 1.7% rise in Tuesday’s trading with the shares pulling back to close at $96.00 at the end of the last trading session.

According to Bloomberg reports, Stryker plans to offer a significant premium, likely to be about 30%, to Smith & Nephew’s current share price. However, the bid is still being finalized and the timing is subjected to change. As per one of Bloomberg sources, there is also a possibility that Stryker may not make an offer at all.

When the acquisition rumor first surfaced in May this year, Stryker denied any intention to make a takeover bid, thus ruling itself out for six months. The six-month cooling off period imposed by U.K.'s takeover rules ended on Nov. 28, following which Stryker is free to make offers.

Reportedly, Stryker is not considering a so-called "tax inversion" (attempt to offset the impact of the high U.S. corporate tax rate by shifting their tax bases overseas) because of limited tax benefits and political risk. The MI-based firm sees strong strategic reasons to pursue a combination including significant top- and bottom-line synergies. According to Morgan Stanley analysts, a Stryker purchase of Smith & Nephew may be much more positive for earnings if it isn’t structured as an inversion.

Notably, this hot trend among U.S. companies to shift their legal addresses overseas as a route to escape the high corporate tax rates in the U.S. is being clamped down by the U.S. government. The recent scrutiny of corporate inversions has caused health care companies including AbbVie to back off their takeover plans.

Nevertheless, the health care sector is seeing rampant consolidation activity as medical device companies are making efforts to tame rising costs. The impending mergers between medical giant Medtronic Inc. (MDT - Analyst Report) and Covidien Plc (COV - Analyst Report) and between Zimmer Holdings Inc. and privately-owned Biomet Inc. pose a threat to Stryker’s attempt to become a major market power.

However, we believe that Stryker can mitigate the impact from these M&A activities with the acquisition of Smith & Nephew which will boost its competitive position in the hip and knee replacement market and open up avenues for growth in the wound-care management business. In addition, the acquisition will help Stryker take advantage of the potential growth in the emerging market.

We believe Stryker, with its established base as a large medical device corporation in the U.S., will be able to reasonably expand its market share in the European subcontinent, if it finally takes over Smith & Nephew.

Currently, Smith & Nephew carries a Zacks Rank #3 (Hold) while Stryker holds a Zacks Rank #4 (Sell).