Unlike the combination of Medtronic and Covidien, there is a certain amount of overlap from a product perspective when it comes to the union of orthopedics rivals Zimmer and Biomet.
Given that, here is a natural expectation that post the closing - still expected to be in the first quarter of next year - not all sales representatives would have a job to go back to. Warsaw, Indiana-based Zimmer announced in April that it was buying its in-state competitor for $13.35 billion.
However, in Zimmer's second-quarter earnings call Thursday, CEO David Dvorak took a different tack to the issue of sales integration in response to a question from Michael Weinstein, an analyst with JPMorgan Chase.
Here's an edited portion of what Weinstein asked, according to a transcript of the call from Seeking Alpha:
So it sounds like, David, the plan for now is to try and keep everybody in place for some period of time post-closing. Can you just help us understand, one, the cost of a program like that? So how much will you invest in order to retain distribution for some period of time? And then two, how long do you think that period of time is? Is there a point which, is it year 2 in which we would expect to see greater integration of the U.S. distribution system?
To which Dvorak responded (edited):
Yes, I think I would tell you that from a starting point, we've made the statements and commitments to retain all of the sales positions for both entities. And that's really important because from our perspective, we're going to have a broader set of solutions and offerings in order to fully leverage the cross-selling opportunities that come with this combination. We're going to need all of that sales talent, and there's a pretty extraordinary level of sales talent in both sides of these organizations.
Pressed by Weinstein about the cost of such a program, Zimmer's chief financial officer, James Crines, said the cost of retention and integration overall has been estimated to be $400 million.
But neither Dvorak nor Crines addressed for how long such a U.S. distribution program with the same number of Zimmer and Biomet sales reps would continue on after the combination of the two companies. Still, for now, at least sales reps at both organizations can rest easy.
[Photo Credit: iStockphoto.com user johnnyscriv]