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, the former orthopedics business of Bristol-Myers Squibb
Co. that was spun off in 2001, 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. It deemed the musculoskeletal
industry to be worth about $45 billion; Zimmer's market value is
about $15 billion and it has more than 9,500 employees
globally.
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 acquisition price includes the assumption of debt and all
but $3 billion is in cash. At closing, which is expected in the
first quarter of next year, Zimmer stockholders are expected to own
about 84% of the combined company, with Biomet holders owning the
rest.
The combined company will continue to be based in Warsaw, Ind.,
where both companies are already located. Two representatives of
Biomet's principal stockholders will join the board.
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 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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