Despite having received a go-ahead from the Japan Fair Trade Commission and a conditional approval from the European Commission (“EC”) for the mega $13.0 billion Biomet deal, Zimmer Holdings Inc. ZMH expects certain delay further in the closure of the deal. Accordingly, the company has announced an extension of the "outside date" for completing the proposed merger.
The expected termination date of the deal, which is to take place between Zimmer and Owl Merger Sub, Inc. and LVB Acquisition, Inc. – the parent company of Biomet, has been extended from Apr 24, 2015 to Jul 23, 2015. The transaction, however, will require a final clearance from the U.S. Federal Trade Commission (“FTC”) as well as meet other customary closing conditions.
Zimmer currently expects to receive the FTC clearance for the proposed transaction by the end of April or shortly thereafter. Besides, EC’s approval is subject to Zimmer’s divestiture of certain assets comprising the remedy package that was previously submitted to the EC.
Nevertheless, we are impressed with the strong strategic and financial goals that the combined entity expects to reach after the closure of the Biomet deal. Post-acquisition, the combined entity – to be named “Zimmer Biomet” – seeks to become a market leader in the $45 billion musculoskeletal industry by creating a more comprehensive and diversified portfolio with 17% market share and attractive cross-selling opportunities.
The company believes this impending acquisition will be in line with its strategic framework that focuses on growth, operational excellence and prudent capital allocation. The combined entity will be more competitive in knee and hip franchises with a diverse revenue base to increase scale and garner share in faster growing markets in adjacent categories.
Moreover, Zimmer expects enormous financial benefits from this takeover. According to the company, upon completion, the transaction is expected to be accretive to its adjusted earnings per share in double digits in the first year. Also, by the third year, net annual synergies should reach approximately $270 million with roughly $135 million expected in the first year itself.
The combined entity will also likely generate operating cash flow of more than 1.5 times Zimmer's stand-alone estimates. Accordingly, with strong cash flow, Zimmer should be able to maintain a stable dividend of 15% to 20% of net income following the closure of the transaction. Full-year 2015 guidance for the combined company will be provided post completion of the transaction.
The stock currently carries a Zacks Rank #3 (Hold).
Stock to Consider
Some better-ranked medical products stocks are LeMaitre Vascular, Inc. LMAT, Phibro Animal Health Corporation PAHC and SurModics, Inc. SRDX. All the three stocks sport a Zacks Rank #1 (Strong Buy).
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