Zimmer CEO says Biomet merger to close soon and result in $270M of synergies

Zimmer CEO David Dvorak

Zimmer ($ZMH) CEO David Dvorak repeated his promises to close the company's looming $13 billion merger with Biomet by the end of the first quarter and keep all sales positions during the company's Q4 2014 earnings call.

He promised above market growth in a couple of years, saying, "It could be the case that there are some puts and takes to our performance relative to market growth rates once we consummate the transaction and are performing on a combined basis, but we would still expect the combined company in the initial years to perform at market. And we believe that we have opportunities with sales force specialization, the innovation pipeline, the cross-sell opportunities, as we progress through the early stages of the execution, the integration and get toward the back part of that three-year phased integration approach to be able to accelerate to above market rate growth."

There has been speculation that the combined company will eliminate sales positions due to product overlap, but Dvorak said the company "made some of the statements upfront because of the nature of the opportunity that we have for cross-selling and pulling the product offerings together that we were going to retain every sales position. And we stand by that commitment and I would tell you if anything, as we get into the detailed planning and the cross-selling opportunities get fully characterized, I think those opportunities are every bit as big as what we initially thought."

The company said it remains committed to its goal of $270 million in synergies from the merger by its third year, with half of the cost savings coming in the first year.

The deal is under regulatory scrutiny, especially in Europe, where the antitrust authorizes have repeatedly asked for more information. Zimmer will be forced to divest some products on the continent, including an artificial elbow brand and one total knee replacement brand in two European countries.

Overall, the company reported net sales of $1.22 billion in Q4, a decrease of 1.4% from the prior year period. Dvorak said last year's quarter was a tough comparison point due to the implementation of the Affordable Care Act. Profits were $295.6 million on an adjusted basis, an increase of 2.4% year-over-year.

Zimmer is subject to the tough pricing pressures of the orthopedics industry. "With respect to pricing, we experienced price pressure of -2.4%, both in the quarter and for the full year, consistent with our expectations," Dvorak said.

The company is pushing for premium pricing of its Persona Knee system, which helped the company's knee business increase sales 2.5% in the quarter. "There are variants of the Persona system, this is a big system that includes cemented, non-cemented and we're working towards other elements in this multi-phase launch of the Persona system but we're continuing to be optimistic and quite confident about our ability to execute and get premium prices for the element of the technology we think warrant it," Dvorak said.

Zimmer's stock fell about two points on the earnings announcment and stands at about $112.

- here's the earnings release

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