Zimmer/Biomet

The deal: Zimmer buyout of Biomet
The price tag: $13.4 billion
Inversion? No
Status: Announced; closure expected by end of the quarter

Why it matters: Closure would shrink the orthopedics industry to three big players, with the others being Johnson & Johnson's ($JNJ) DePuy and Stryker ($SYK), which has been the subject of relentless rumors saying that it will acquire medium-sized Smith & Nephew ($SNN) in response to the deal.

Meanwhile, Zimmer ($ZMH) is battling speculation that layoffs are around the corner. After all, the promised $270 million in synergies over three years has to come from somewhere and there is some product overlap in areas like knee replacements.

Zimmer CEO David Dvorak

But during the most recent earnings call, Zimmer CEO David Dvorak reiterated his no-job-cuts promise, saying, "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."

Dvorak acknowledged that there will be some dissynergies early on due to product overlap, but said "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."

The transaction illustrates some key industry trends. Hospitals are becoming tougher bargaining partners due to consolidation. They also aim to buy implants in greater bulk by using fewer suppliers, necessitating a reduction in the number of players.

Finally, for the most part orthopedics are becoming commoditized as companies struggle to eke out meaningful clinical advances. All these trends point toward lower prices, which in turn results in consolidation.

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

One positive for the employees is that there won't be much need for relocation. Both companies are headquartered in the orthopedics hub of Warsaw, IN.

For more:
Zimmer CEO says Biomet merger to close soon and result in $270M of synergies
Zimmer makes a divestiture proposal to appease EU regulators in Biomet acquisition
Zimmer, Biomet to join forces in $13.4B deal

Zimmer/Biomet
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