By Lauren Pollock
Zimmer Holdings Inc. agreed to buy fellow orthopedic device
maker Biomet Inc. for about $13.35 billion in cash and stock, in a
bid to position the combined company as a leader in the
musculoskeletal industry.
The deal, which has been approved by the boards of both
companies, would end Biomet's bid to return to the public market.
The maker of dental implants and artificial hips and knees earlier
this year filed plans for an initial public offering, partly to pay
off debt from its 2007 buyout.
For its part, Zimmer has faced a weak domestic market for
reconstructive hip and knee products as people delay surgeries in a
still-uncertain economic environment. In recent quarters, however,
there have been signs that the declines are stabilizing.
Shares of Zimmer, which also reported improved first-quarter
results, surged on the deal, rising about 11% premarket and pushing
up peers like U.K. medical equipment maker Smith & Nephew.
Zimmer's agreement for Biomet is the latest transaction in what
has been a busy week for health-care deals. Like Zimmer's
transaction, the earlier deals were designed to focus each firm on
specific sectors where it believes it has the size and expertise to
generate significant sales growth.
Earlier this week, Swiss drug giant Novartis AG and the U.K.'s
GlaxoSmithKline PLC announced more than $20 billion in deals.
Novartis will sell its animal-drugs business to Eli Lilly & Co.
and most of its vaccine business to Glaxo, and Novartis will buy a
portfolio of cancer therapies from Glaxo. Novartis and Glaxo said
they also pooled their nonprescription products, such as the pain
relievers Excedrin and Panadol, in a joint venture.
Zimmer Chief Executive David Dvorak, who will lead the combined
company when the deal for Biomet closes said his company believes
"current demographic and macroeconomic trends affecting the
healthcare industry will reward companies that successfully partner
with other key stakeholders to improve patient care in a
cost-effective manner."
The deal, which also includes the assumption of debt, is
expected to close in the first quarter of next year. Of the
acquisition price, all but $3 billion is in cash. At closing,
Zimmer stockholders are expected to own about 84% of the combined
company, and Biomet shareholders will own the rest.
Zimmer said the combination will enhance its offerings in the
knee, hip, surgical, spine and dental categories, as well as in the
faster-growing sports medicine, extremities and trauma
categories.
Based in Warsaw, Ind., Biomet was acquired in 2007 for about
$11.3 billion by Blackstone Group, KKR & Co., TPG and Goldman
Sachs Group Inc.'s buyout arm. Each of those firms pitched in about
$1.3 billion in cash, with the remainder, about $6.2 billion,
covered with new debt. Biomet still carries much of that buyout
debt on its balance sheet.
Biomet said earlier this month that its fiscal third-quarter
loss narrowed, benefiting from fewer special charges and higher
hips and knees revenue.
For 2013, Zimmer and Biomet together had revenue of about $7.8
billion. The deal is expected to add to Zimmer's earnings on a
double-digit basis in the first year after closing, and it sees
synergies of about $270 million a year by the third year after
closing.
The combined company will continue to be based in Warsaw, where
both companies are already located. Two representatives of Biomet's
principal stockholders will join the combined company's board.
The deal was unveiled as Zimmer reported slight increases in
profit and revenue for its first quarter and lowered its earnings
view for the year based on a higher share count.
Write to Lauren Pollock at lauren.pollock@wsj.com
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