(Adds private equity profit, comment, updates shares)
By Bill Berkrot and Esha Dey
April 24 Zimmer Holdings Inc said on
Thursday it would buy rival orthopedic products maker Biomet Inc
for more than $13 billion, the latest deal in a wave
of consolidations in the healthcare industry.
Investors gave a resounding thumbs up to the announcement,
sending Zimmer shares up more than 18 percent on expectations
the larger scale will help it navigate stiffer pricing pressure
on medical devices from hospitals and insurers. The deal is
expected to take Zimmer from the fourth-largest seller of
orthopedics products to No. 2, behind Johnson & Johnson.
Zimmer, which expects to close the deal in the first quarter
of 2015, said the combination would double the size of its spine
and dental business, broaden its portfolio of products to treat
bones, knees and hips, and give it an entry into the smaller but
growing field of sports medicine.
"Biomet is a perfect fit for us," Zimmer Chief Executive
David Dvorak told analysts and investors on a conference call.
The deal will also significantly add to Zimmer's earnings in
the first year and lead to net annual cost savings of about $270
million by the third year after closing, the company said.
"The financial aspects of it are hard to find fault in,"
said Jefferies & Co analysts Raj Denhoy. "In healthcare, being a
larger company that has a broader product offering seems to be
the way that things are evolving. You're selling to hospitals
as opposed to individual surgeons and having that larger
footprint is believed over time to be important."
The Zimmer announcement follows a flurry of large deals and
rumored transactions in healthcare aimed at either gaining scale
or specializing in certain disease areas over the past few days.
In a surprise move earlier this week, Valeant
Pharmaceuticals International Inc teamed with Bill
Ackman's Pershing Capital hedge fund on an unsolicited $47
billion bid for Botox-maker Allergan Inc. That followed
media reports that Pfizer Inc had approached British
drugmaker AstraZeneca over a potential $100 billion
merger that did not materialize.
Also this week, Novartis AG and GlaxoSmithKline
Plc agreed to trade some $20 billion in assets, while
Eli Lilly and Co agreed to buy Novartis's animal health
business for $5.4 billion.
LONG TIME COMING
Piper Jaffray analyst Matt Miksic said consolidation in the
$45 billion global orthopedics market was a long time coming.
"In hips and knees there are five pretty large players all
competing for the business of the hospital and the surgeon and
most people looking at the industry ... would say the economics
work better for everyone if there were fewer," Miksic said.
Biomet was taken private for $11.4 billion by a private
equity consortium in 2007, when the economy and medical device
market were particularly strong.
The consortium, including affiliates of Blackstone Group
, Goldman Sachs Capital Partners, Kohlberg Kravis Roberts
& Co and TPG, last month had filed with U.S.
regulators to raise $100 million through an initial public
offering. That plan was overtaken by the Zimmer
deal that has been approved by both boards of directors.
Morningstar analyst Debbie Wang said the deal was even more
important for Biomet, which like Zimmer is headquartered in
Warsaw, Indiana, as hospitals look to shore up profit by
"There's a lot of orthopedic makers out there right now and
the smaller ones were at great risk of being left behind," Wang
said. "So for Biomet to hook up with one of the larger players,
it really saved their business over the long haul."
In 2013, the companies' combined revenue amounted to $7.8
Based on the $5.2 billion in equity that the four buyout
firms invested in Biomet's leveraged buyout, and assuming no
dividends paid to them since the acquisition, they stand to make
more than 1.4 times their money on the deal, regulatory filings
"The implied transaction value would suggest around a 40 to
45 percent improvement in Biomet's valuation relative to where
we held it as of March 31," Scott Nuttall, KKR's head of global
capital and asset management, said on KKR's first-quarter
earnings call on Thursday.
Under terms of the deal Zimmer will pay $10.35 billion in
cash and issue $3 billion in shares to Biomet shareholders.
. Once completed, Zimmer stockholders are expected
to own about 84 percent of the combined company and Biomet
shareholders about 16 percent, Zimmer said.
The cash portion of the deal will be funded by cash on hand
and $3 billion from a senior unsecured term loan and an issue of
Zimmer shares were up $10.54, or 11.5 percent, at $101.99 on
the New York Stock Exchange after earlier climbing as high as
Zimmer was advised by Credit Suisse Securities and White &
Case LLP. Biomet was advised by BofA Merrill Lynch, Goldman
Sachs, Cleary Gottlieb Steen & Hamilton LLP and Weil, Gotshal &
(Reporting by Bill Berkrot in New York and Esha Dey in
Bangalore; Editing by Michele Gershberg, Phil Berlowitz and