By Jof Enriquez,
Follow me on Twitter @jofenriq
Zimmer Holdings Inc. will purchase Biomet Inc. in a deal worth $13.4 billion. The merger of the two rivals will create the second-largest company in the burgeoning $45 billion market for orthopedic and dental products, behind market leader Johnson & Johnson, according to a Bloomberg report.
Under the terms of the deal, Zimmer will pay $10.35 billion in cash and $3.0 billion in common stock, while also assuming Biomet’s outstanding debt. Upon closing, Zimmer stockholders are expected to own 84 percent of the new company, while 16 percent will be held by Biomet shareholders.
The transaction is the fifth largest medical device industry transaction in the past decade, and the largest since J&J purchased Synthes for $19.7 billion in 2012, according to Bloomberg. The deal is expected to be completed by the end of the first quarter of 2015 after clearing regulatory hurdles, including antitrust laws, and EU regulations.
Partially spurred by implementation of the Affordable Care Act’s medical device excise tax, some companies in the medical device industry are looking to scale up. “We’re going to have the resources to invest in a way that won’t be affected by that tax,” David C. Dvorak, Zimmer’s CEO, said in an interview with the New York Times.
The combined company is expected to save $135 million in the first year and $270 million by the third year, when Zimmer and Biomet will be fully integrated. Zimmer said the acquisition will provide better future financial flexibility, including achieving stable dividend of 15 to 20 percent of net income after closing the deal.
"This is a milestone combination that brings together two highly complementary organizations and is consistent with our mission to lead the industry in delivering value to healthcare providers, their patients and stockholders," Dvorak said in a press release. “We believe that 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.”
“This will give Zimmer some leverage when they go to hospitals, and help them compete,” Jason McGorman, an industry analyst, said in a telephone interview by Bloomberg. “They get a little more in terms of products in other areas, like sports medicine, extremities and trauma, where Zimmer has less exposure.”
In a conference call discussing details of the merger and Zimmer’s Q1 2014 results, Zimmer CFO Jim Crines reported total revenue of $1.161 billion for the first quarter of 2014, a 3.2 percent rise from the same period last year, while adjusted net earnings increased by 7.2 percent to $258.1 million year-on-year.