Zimmer Closes on Its $14 Billion Purchase of Biomet

Find out what the new Zimmer Biomet Holdings has to divest as part of the deal.

Zimmer Biomet Logo
The new Zimmer Biomet Holdings logo (Image courtesy of Zimmer Biomet)

Nancy Crotti

Cross-town Warsaw, IN-rivals Zimmer Holdings Inc. and Biomet completed their merger Thursday, following the Federal Trade Commission's tentative approval of the companies' plans to divest products that the FTC believes would restrain trade.

The new company, Zimmer Biomet Holdings Inc., is expected to overtake Stryker to become the second-largest orthopedic device firm, trailing Johnson & Johnson.  It will trade under the name ZBH on the New York Stock Exchange and the SIX Swiss Exchange, beginning June 29, the new company said in a news release.

The terms of the merger were announced in April 2FF014, later prompting EU antitrust regulators to launch an extensive probe, as Reuters reported. To complete the $14 billion deal (previously listed as $13.3 billion), the musculoskeletal device makers must divest some U.S. rights and assets. In a proposed settlement with the FTC, the merged company would sell Zimmer's U.S. ZUK unicondylar knee implant rights and assets to London-based Smith & Nephew, and Biomet's U.S. Discovery Total Elbow implant and Cobalt Bone Cement rights and assets to Vista, CA-based DJO Global Inc., according to an FTC statement.

The companies have 10 days to comply with the proposed settlement after the merger completion, the agency said. They plan to complete the divestments within a week, according to company representative Monica Kendrick. The agreement will be subject to public comment for 30 days, beginning today and continuing through July 24, 2015, after which the commission will decide whether to make the proposed consent order final.

The sale price jumped to $14 billion due to the increase in Zimmer's stock price between the merger announcement and the closing, Kendrick wrote in an email. "While most of the purchase price was paid in cash, a portion of the merger consideration was paid in Zimmer stock," she wrote.

The merger should make investors happy-- employees, not so much. Zimmer will shutter its Carlsbad, CA-based dental facility following the merger, laying off an undisclosed number of employees, documents revealed this spring. The plant would close within 12 months while the company begins the consolidation of its operations to Biomet's dental headquarters in Palm Beach Gardens, FL.

"As the integration of the two companies continues, there are plans to consolidate certain locations," Kendrick acknowledged. "These plans will take time to implement, and for the majority of our employees, it is business as usual. As is our practice, all affected employees and our community leaders will be kept informed, and as always, we will adhere to all applicable local laws and regulations."

Zimmer Biomet Holdings expects a double-digit increase in its earnings per share in the first year following the closing. It anticipates savings of approximately $135 million anticipated in the first 12 months, and approximately $350 million by the third year following closing. Revenue growth is also expected, even excluding Biomet contributions, the combined company said.

The Japan Fair Trade Commission approved the deal in March, following the lead of European regulators.

Two Biomet board members, Michael W. Michelson, of the private equity firm KKR, and Jeffrey K. Rhodes, a partner in private investment firm TPG, have joined the Zimmer Biomet Holdings board of directors.

Refresh your medical device industry knowledge at MEDevice San Diego, September 1-2, 2015.

Nancy Crotti is a contributor to Qmed and MPMN.

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