Zimmer Closes Biomet Deal, Sells Knee Implant Biz To Smith & Nephew

By Jof Enriquez,
Follow me on Twitter @jofenriq

Zimmer Holdings, Inc. has formally completed its merger deal with fellow orthopedic company Biomet, Inc. As part of that deal, Zimmer agreed to divest certain assets in the U.S. market in accordance with antitrust conditions set by the U.S. Federal Trade Commission (FTC).

Zimmer announced that its acquisition will result in a cash and equity transaction worth about $14 billion, and that the new company will be known as Zimmer Biomet Holdings, Inc. The new entity’s headquarters will be in Warsaw, Ind., where both Zimmer and Biomet already were based.

"The coming together of Zimmer and Biomet is a momentous achievement.  We are excited to move forward as one company and to pursue new opportunities that benefit patients, healthcare professionals and employees around the globe," said David Dvorak, president and CEO of Zimmer Biomet, in the release. "Over the past several months, our integration planning teams have been working to ensure that we capture the best of both companies and create a seamless and efficient transition.  I look forward to continuing to work closely with our employees for the benefit of all of our stakeholders."

Since proposing their merger in April 2014, Zimmer and Biomet have been working with regulators to comply with antitrust requirements. The two companies gained approval from The European Commission (EC) and the Japan Fair Trade Commission, but the FTC delayed its clearance pending resolution of a complaint it filed against Zimmer and Biomet.

The FTC required both companies to submit additional information about the deal after it alleged that the merger is anti-competitive in nature — Zimmer and Biomet are two of the largest orthopedic companies, and their merger creates the second-largest company in the $45 billion market for orthopedic and dental products, trailing only market leader Johnson & Johnson.

In early June, the commission ordered Zimmer to sell off some of its U.S.-based business assets to comply with antitrust requirements. This week, Zimmer  reached a settlement agreement with the FTC to formally sell those assets.

The FTC said in a statement that Zimmer now will be allowed to merge with Biomet, pending Zimmer’s sale of the rights and assets to its U.S. ZUK unicondylar knee implant to London-based Smith & Nephew. The merger also is contingent on Biomet selling the rights and assets to its U.S. Discovery Total Elbow implant and Cobalt Bone Cement to Vista, Calif.-based DJO Global, Inc. All three transactions will include divestiture of U.S. intellectual property, manufacturing technology, and existing inventory of the aforementioned product lines to the buyers. Financial terms of those sales were not disclosed.

The settlement also requires that Zimmer and Biomet divest the assets within 10 days after their merger is finalized, or on the date the FTC order becomes final, whichever is earlier. FTC is appointing a monitor to check Zimmer Biomet's compliance with the settlement order.

Smith & Nephew said in a news release that its purchase of the U.S. ZUK unicondylar knee implant rights will be completed within three days of the merger between Zimmer and Biomet.

"Our acquisition of this product line expands our access to a fast growing segment of the joint reconstruction market," stated Brad Cannon, president of Global Orthopaedic Franchises for Smith & Nephew. "We look forward to welcoming many new customers to Smith & Nephew and are excited by this opportunity to demonstrate first-hand our excellent customer service and broad range of advanced surgical products."

Smith & Nephew's purchase of the ZUK knee implant product line is consistent with its recent pronouncements of wanting "bolt-on" acquisitions, even if the reconstruction business is a lower-growth area for a company that has become a takeover target for bigger companies in the consolidating orthopedics market.