Zimmer-Biomet Merger Deal Data ‘Incomplete’

The initial notification Zimmer Holdings Inc. submitted for its $13.35 billion merger with Biomet Inc. is incomplete, according to European regulators reviewing the proposed deal. Zimmer is working with the European Commission to provide additional requested information, the company said in a news release.

At stake is a merger that would create the world’s second-largest orthopedics player, behind only Johnson &Johnson and its DePuy Synthes business. The Zimmer-Biomet marriage is the largest in the orthopedic implant industry since J&J purchased Synthes Inc. for $21.3 billion in 2012, and highlights the desire of device companies to cut costs and become more efficient in the face of pricing pressure from hospitals, combined with lower surgical-procedure volumes because of consumer uncertainty about the economy, analysts said.

Zimmer is expected to file an updated notification with the commission in the near term and continues to expect the transaction to be cleared for the merger in the first quarter of 2015. With the findings of insufficient information, the commission threw out the July 9 decision deadline and said it will set a new deadline after it receives Zimmer’s necessary information.

The deal has been approved by both companies’ boards. The acquisition price, which includes the assumption of debt, consists of $10.35 billion in cash and $3 billion in Zimmer shares.

Zimmer and Biomet, both located in Warsaw, Ind., expect to generate cost savings of $135 million in the first year and $270 million by the third year. The savings will contribute $1.15 a share to $1.25 a share in earnings during the first year, James Crines, Zimmer’s chief financial officer, said on a conference call.

David Dvorak, Zimmer’s president and CEO, said the merger was about “achieving growth and cultivating best-in-class solutions,” adding that Zimmer’s management has “a great deal of respect” for what the management team and employees have accomplished at Biomet. “We are confident in their ability to be a very important part of the combined organization as we bring our two world-class companies together and cement Warsaw, Indiana, as the musculoskeletal innovation capital of the world,” he noted during a conference call with analysts and reporters, predicting a smooth transition in combining the companies, which are both based in Warsaw.

According to Dvorak and Jeffrey R. Binder, Biomet’s president and CEO, the “complementary nature” of the two businesses adds diversity and scale across geographies and product categories.

Given the complementary nature of the portfolios, the combined company will offer a greater depth and breadth of musculoskeletal solutions to improve clinical outcomes and patient satisfaction levels, the executives predicted. The combination will enhance enterprise diversification with broader franchises in the knee, hip, surgical, spine and dental categories, as well as in the faster-growing sports medicine, extremities and trauma categories.

Zimmer and Biomet expect to leverage complementary sales channels in major markets to achieve cross-selling opportunities, while also strengthening their presence in emerging markets through the combination.

The combined company will continue to be headquartered in Warsaw and maintain regional offices around the world. Upon completion of the transaction, David Dvorak will be president and CEO of the combined company. Also after closing, two representatives of Biomet’s principal stockholders will join the combined company’s board, which will be expanded accordingly, officials noted. No word yet on positions for Biomet’s C-suite.

As far as branding, the combined company will conduct business “under a consolidated name that will leverage the strengths of both brands,” but precise details have not been discussed.