Zimmer-Biomet Merger Deal Data ‘Incomplete’ EU Officials Claim; U.S. Trade Commission

Zimmer-Biomet Merger Deal Data ‘Incomplete’ EU Officials Claim; U.S. Trade Commission Wants More Info
The initial notification Zimmer Holdings Inc. submitted for its $13.4 billion merger with Biomet Inc. was deemed “incomplete” in June by European regulators reviewing the proposed deal. Zimmer began working with the European Commission to provide additional requested information, but now the U.S. Federal Trade Commission (FTC) also has requested “more information.”

The Zimmer-Biomet marriage is the largest in the orthopedic implant industry since JNJ 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 due to 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, then scrapped the original deadline and said it would announce a new deadline soon, according to Zimmer officials.The deal has been approved by both companies’ boards. The acquisition price, which includes the assumption of debt, consists of $10.4 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.” 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.

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.

The second request for more information by the FTC was issued under the notification requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act). The effect of the second request is to extend the waiting period imposed by the HSR Act until 30 days after Zimmer and Biomet have substantially complied with the request, unless that period is extended voluntarily by the parties or terminated sooner by the FTC.

This means that FTC officials believe there may be significant competition implications to the deal.Zimmer and Biomet have said they will continue to work closely with the FTC as it conducts its review of the proposed transaction, which remains subject to the expiration or termination of the waiting period under the HSR Act, antitrust clearance in certain foreign jurisdictions as well as other customary closing conditions.

If the deal is successful, Biomet will become a public company again. Biomet was in the process of filing an initial public offering (IPO) when the $13.4 billion acquisition was announced in April. The IPO was, in part, to pay off debt incurred from the 2007 buyout.

Biomet was acquired by a consortium of major private equity firms in 2007 for $11.4 billion.

Zimmer designs, develops, manufactures and markets orthopedic reconstructive, spinal and trauma.

Biomet’s product portfolio includes hip and knee reconstructive products; sports medicine, extremities and trauma products; spine, bone healing and microfixation products; dental reconstructive products; and cement, biologics and other products.