Zimmer Biomet is born after knee implant divestiture to S&N

Zimmer Biomet CEO David Dvorak

Zimmer ($ZMH) is now Zimmer Biomet Holdings thanks to its now-complete $14 billion acquisition of fellow Warsaw, IN, orthopedics player Biomet. The deal creates an industry giant. Zimmer had 2014 revenues of $4.7 billion, while Biomet's FY 2014 revenues were $3.2 billion.

Permission to merge was given following Zimmer's agreement to divest its Unicompartmental High Flex Knee to the U.K.'s Smith & Nephew ($SNN) in the U.S. market within three days of the acquisition's June 24 closure.

"We have the scale, resources and talent to achieve game-changing innovations across the entire continuum of care and human anatomy," wrote the new company's CEO David Dvorak (former head of Zimmer) in an email to company employees upon the deal's closure. It was written in 11 languages, reflecting the company's global reach.

"As of today, the new executive leadership team will step into their previously-announced roles. They can begin implementation of the comprehensive integration plans that have been developed over the past several months. This process will continue to evolve over the next 12 to 18 months. In the meantime, please continue to stay focused on our Customers and their patients," the email continued.

Conceived during last year's period of med tech merger mania, the deal reflects the increased benefits of scale (and dangers of being small) within the medical device industry--and the orthopedics sector in particular.

Consolidating and cost-cutting hospitals have become tougher bargaining partners when it comes to bulk purchase contracts. To get a better deal, they are buying increased volumes of fewer models, necessitating a reduction in the number of suppliers. In addition, clinically differentiating orthopedic implants has gotten tougher, so Zimmer has had to compete with the likes of Stryker ($SYK) predominantly on the basis of price.

Cost cutting is another rationale for the acquisition. In a release explaining the closure, Zimmer Biomet promised investors synergies of about $350 million by the new company's third year, with $135 million achieved in the first year. Dvorak has said no salespeople would be laid off due to the merger.

FierceMedicalDevices previously revealed Zimmer's plans to close its Carlsbad, CA, dental headquarters resulting in an unspecified number of layoffs. The new company's dental headquarters will be consolidated into Biomet's dental headquarters in Palm Beach Gardens, FL.

Zimmer Biomet's dental devices and implant business has doubled in size now that the deal is closed. But the acquisition was mostly driven by other business lines including artificial hips and knees, orthopedics for the body's extremities, sports medicine devices, spinal implants and biologics that promote bone healing.

Upon announcing the deal, Zimmer Biomet said it expects annual constant currency revenue to increase by 1.5% to 2% instead of the previous expectation of 1.5% to 2.5%. The lower expectations reflect the inclusion of Biomet's prior revenues in the comparison period as well as the divestitures.

To that end, California's DJO Global announced that its Encore Medical subsidiary is the buyer of Biomet's Cobalt Bone Cement, Optivac Cement Mixing Accessories and Discovery Elbow System in the U.S. And to satisfy European regulators, the High Flex Knee and Discovery Elbow System, as well as Biomet's Vanguard Complete Knee System has been sold to Italy's Lima Corporate.

The Wall Street Journal reports that Standard & Poors cut Zimmer Biomet's credit rating by two notches to triple-B due to the $10 billion in debt that the company took on in order to finance the transaction.

Zimmer Biomet will begin trading on the New York Stock Exchange and the SIX Swiss Exchange under the ticker symbol "ZBH" starting June 29, 2015.

- read the release
- here's more from The Wall Street Journal

Special Report: The 10 largest med tech M&A deals announced in 2014 - Zimmer/Biomet

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