The end is in sight. Zimmer Holdings, Inc. has found buyers for products the Federal Trade Commission (FTC) says the company has to divest in the U.S. in order to get approval for the acquisition of Biomet, Inc.
Diversifying Knee, Elbow and Cement Assets
On May 28, 2015, Zimmer announced finalized agreements with unnamed buyers for certain Zimmer Unicompartmental High-Flex Knee System, Biomet Discovery Elbow System and Cobalt bone cement assets.
The company says is continues to work “constructively with the Bureau of Competition Staff of the [FTC] and is highly confident that within the next few weeks it can finalize the agreement in principle it reached previously with FTC Staff to resolve FTC Staff’s competitive concerns regarding the proposed acquisition.”
Mid-June Closing Expected
With previously announced European Commission and Japan Fair Trade Commission clearance of the acquisition, and anticipated acceptance of the consent order by the FTC and the satisfaction of other customary closing conditions, Zimmer intends to close the Biomet merger at the earliest possible date, which is currently anticipated to be mid-June 2015. The company had previously expected to close the deal by the end of May.
Bob Hopkins, Bank of America’s analyst, said the mid-June close represents a 2.5 month delay from the company’s original guidance provided when the deal was first announced, “And suggests the time from deal announcement to close will be 13.5 months. That compares similarly to the JNJ/Synthes deal, which also took 13.5 months to close.”
While expressing disappointment in the “continued” delays of the deal closing, RBC Capital Markets analyst Glenn Novarro said the important thing is that there is now further clarity on what U.S. assets the FTC will require to be divested, and the magnitude of U.S. divestitures is below his prior thinking.
“We now have clarity on what product lines will need to be or have already been divested to satisfy U.S., EU, and Japanese regulatory authorities. Recall, Zimmer was required to divest its uni knee and Biomet’s Discovery Elbow throughout Europe and Biomet’s Vanguard Total Knee Systems in Denmark and Sweden. Japanese and U.S. regulatory authorities required similar uni knee and elbow divestitures, with the U.S. also requiring divestiture of Biomet’s Cobalt bone cement assets.”
Reduction in Divestiture Revenue Loss
Novarro estimates that total worldwide divestitures revenues are likely to be in the $100 million–$150 million range, lower than his previous $200 million estimate. “We believe this reduction in expected divestitures will more than offset the bottom-line impact on our proforma model from an additional 2–3 week delay in Biomet deal close.”
