Orthopedic device maker Zimmer Holdings Inc. is buying privately-held Biomet Inc. in a cash-and-stock deal valued at about $13.35 billion. Zimmer said the deal will expand its product offerings and services.
Zimmer shares rose more than 16 percent in premarket trading Thursday after the deal was announced.
Zimmer will pay $10.35 billion in cash and issue shares of its common stock valued at $3 billion to Biomet Inc.'s equity holders.
Both firms are based in Indiana and make a variety of orthopedic reconstructive devices for joints such as hips and knees, as well as dental reconstructive implants and spinal devices. The companies say the transaction's total value includes the assumption of an unspecified amount of debt.
The combined company will be based in Warsaw, where both firms are headquartered. Biomet has about 9,000 employees worldwide, of which about 2,000 work in Indiana.
The deal will help Zimmer compete with Johnson & Johnson and Stryker Corp. in a now-growing $45 billion market where sales had been hurt during the recession by people putting off elective surgeries. Biomet’s offerings increase Zimmer’s range of products and the geographic areas, said Jason McGorman, an analyst at Bloomberg Industries in Princeton, N.J.
“This will give Zimmer some leverage when they go to hospitals, and help them compete,” McGorman said. Also, “they get a little more in terms of products in other areas, like sports medicine, extremities and trauma, where Zimmer has less exposure.”
Biomet posted about $3.05 billion in revenue in 2013, a slight uptick from 2.8 billion in 2012, according to IBJ research. It recently announced that it was planning a $40.5 million expansion to its northern Indiana operations, creating 150 new jobs.
Founded in 1927, Zimmer reported $4.6 billion in revenue in 2013. It has about 9,500 employees.
"The transaction positions the combined company as a leader in the musculoskeletal industry with a broad portfolio of products, technologies and services, enabling us to help shape how solutions are developed and delivered," Zimmer President and CEO David Dvorak said in a prepared statement.
Dvorak will serve as president and CEO of the combined company. Two of Biomet's principal stockholders will serve on the combined company's board.
Biomet President and CEO Jeffrey Binder said that the deal will prepare Biomet "to compete as a stronger entity in the medical device industry in the future."
Zimmer stockholders are expected to own about 84 percent of the combined company, with shareholders of Biomet targeted to own approximately 16 percent.
Zimmer Holdings Inc. anticipates annual savings of about $270 million by the third year after the transaction's closing.
The deal is expected to close in 2015's first quarter.
Zimmer's stock gained $15.24, or 16.7 percent, to $106.69 in premarket trading about 45 minutes ahead of the opening bell.
The deal raises the possibility that consolidation in the orthopedic market may pick up, with J&J or Stryker potentially bidding for Smith & Nephew Plc., said Lisa Clive, an analyst with Sanford C. Bernstein & Co. in London.
“Our initial thought following the Zimmer/Biomet news is that a purchase of Smith & Nephew is still unlikely in the 18-24 month timeframe,” Clive wrote in a note to clients. “However, this does open up the possibility of consolidation in the longer-term, which at the very least places a pricing floor on Smith & Nephew shares.”