The European Union's antitrust unit is worried that Zimmer Holdings' ($ZMH) $13.4 billion bid for crosstown rival Biomet will limit competition, and wants to look into the deal further.
The decision is another hurdle for the companies to clear, but equity analyst Larry Biegelsen of Wells Fargo Securities told Reuters that he still expects the transaction to close, pointing out that the EU took similar action against Johnson & Johnson's ($JNJ) successful bid for orthopedics company Synthes in 2011. However, he also said the merger will likely result in a divestment in the knee and shoulder implant market due to the combined companies' market share in those arenas.
As a precedent, Johnson & Johnson sold its trauma products unit to Biomet in 2012 due to antitrust concerns stemming from the the Synthes deal, Reuters points out.
The European Commission's decision on the Zimmer/Biomet deal is expected today, but the probe means the EU receives another 90 days to review the deal. The U.S. Federal Trade Commission also requested more information about the deal in July. The merger would create the second largest orthopedics player behind Johnson & Johnson, and is expected to close in the first quarter of 2015.
Despite the regulatory concerns, industry experts expect consolidation to continue due to trends such as hospitals' use of fewer suppliers--an attempt to cut costs by buying in bulk.
The industry came under attack due to a recent paper in the British Medical Journal which concluded that evidence is lacking that the latest and fanciest implants produce better clinical outcomes than their predecessors. Indeed, a lack of product differentiation and engineering breakthroughs partly explains why orthopedics prices have been declining. According to an AdvaMed study the inflation-adjusted price of artificial knees fell 17% between 2007 and 2011, and there is little evidence that the dynamics have changed since then.
The U.K.'s Smith & Nephew ($SNN) is seen by many as the next takeover target, but its stock price has fallen 6% since the new Department of the Treasury rules made future inversion takeovers less likely.
- read the Reuters article