Zimmer to buy Biomet for $13.35 billion in latest consolidation
Zimmer Holdings Inc (ZMH.N) said on Thursday it’d acquire rival heated goods maker Biomet Inc LVBHAB.UL for greater than $13 billion, the most recent offer in a wave of consolidations within the healthcare sector.
People gave a definite thumbs-up towards the statement, giving Zimmer shares up over 18 percent on expectations the bigger size can help it understand stronger pricing pressure on medical products from providers and hospitals.
The offer is likely to get Zimmer in the fourth-biggest owner of orthopedics products to No. 2, behind Johnson & Johnson (JNJ.N).
Zimmer, which needs to close the offer within the first-quarter of 2015, said the mix could increase the size of its back and dental business, expand its portfolio of products to deal with bones, joints and hips, and provide it an entry in to the smaller but growing area of sports medicine.
“Biomet is an ideal fit for all of US,” Zimmer Leader David Dvorak told investors and analysts on the conference call.
The offer result in net annual cost-savings around $270 million from the next year after closing and may also significantly increase Zimmer’s profits within the first-year, the organization said.
“The economic aspects of it are difficult to find fault in,” said Jefferies & Co experts Raj Denhoy. “In health, being a bigger organization that’s a wider product offering appears to be the way that things are changing. Youare selling to hospitals in the place of individual doctors and having that bigger impact is thought with time to become essential.”
The Zimmer statement follows rumored deals in health-care targeted at possibly getting size or focusing on specific disease areas in the last few days and a flurry of big deals.
In a surprise move earlier this week, Valeant Pharmaceuticals International Inc (VRX.TO) joined with Bill Ackman’s Pershing Capital hedge-fund on an unsolicited $47 billion bid for Botox-maker Allergan Inc (AGN.N). That followed press reports that Pfizer Inc (PFE.N) had contacted British drugmaker AstraZeneca (AZN.L) over a possible $100 billion merger that didn’t appear.
Also this week, Novartis AG (NOVN.VX) and GlaxoSmithKline Plc (GSK.L) decided to trade some $20 billion in assets, while Eli Lilly and Co (LLY.N) decided to purchase Novartis’s animal health company for $5.4 billion.
LONG TIME COMING
Piper Jaffray analyst Matt Miksic said relief within the $45 billion global orthopedics industry was quite a long time coming.
“In legs and hips you will find five fairly big players all competing for your company of the doctor as well as a medical facility and many people taking a look at the… If there were fewer would say the economics are better for everybody,” Miksic said.
Biomet was taken private for $11.4 billion with a private-equity consortium in 2007, once the economy and medical device industry were especially strong.
The range, including affiliates of Blackstone Group (BX.N), Goldman Sachs Capital Partners, Kohlberg Kravis Roberts & Co (KKR.N) and TPG TPG.UL, last month had submitted with U.S. specialists to raise $100 million via an initial public offering. That program was overtaken from the Zimmer offer that’s been accepted by both boards of directors.
Morningstar analyst Debbie Wang said the offer was much more essential for Biomet, which like Zimmer is based in Warsaw, Indiana, as hospitals turn to shore up gain consolidating suppliers.
“the smaller ones were at great danger of being left out and also Thereis lots of heated manufacturers available at this time,” Wang said. “So for Biomet to connect with among the bigger people, it surely saved their company within the longterm.”
In 2013, the firms’ combined income amounted to $7.8 billion.
On the basis of the $5.2 billion in value the four buyout firms committed to Biomet’s leveraged buyout, and assuming no dividends paid for them because the purchase, they stand to create significantly more than 1.4 times their income about the offer, regulatory filings show.
“The intended exchange price indicate around a 40 to 45 percent improvement in Biomet’s value in accordance with where we kept it by March 31,” Scott Nuttall, KKRis head of international capital and asset-management, said on KKR’s first-quarter earnings call on Thursday.
Under conditions of the offer Zimmer can pay $10.35 billion in cash and issue $3 billion in stocks to Biomet investors. Once finished, Zimmer stockholders are required to possess about 84 percent of the combined business and Biomet shareholders about 16 percent, Zimmer said.
The money part of the offer is likely to be backed by cash available and $3 billion from a problem of senior notes and the senior unsecured term loan.
Zimmer shares were up $10.54, or 11.5 percent, at $101.99 about the New York Stock Exchange after earlier climbing as high as $108.33.
Zimmer was advised by Credit Suisse Securities and White & Case LLP. Biomet was recommended by BofA Merrill Lynch, Goldman Sachs, Cleary Gottlieb Steen & Hamilton LLP and Weil, Gotshal & Manges LLP.