European Commission Approves Zimmer-Biomet Deal

Zimmer Holdings Inc.’s long-awaited deal to acquire Biomet Inc. gradually is approaching its closure.

Following last week’s go-ahead by the Japan Fair Trade Commission, the European Commission (EC) now has given its blessing to the $13.35 billion deal, thereby fulfilling one of the conditions necessary for the merger to take place.

However, the Commission’s approval is subject to Zimmer’s divestiture of certain assets comprising the remedy package, which previously was submitted to the EC. Zimmer expects to enter into such divestment agreements in the near term. The transaction, however, still needs clearance from the U.S. Federal Trade Commission, and it must meet other customary closing conditions. Zimmer expects the transaction to close this month.

Post acquisition, the combined entity – to be named “Zimmer Biomet” – will become a market leader in the $45 billion musculoskeletal industry by creating a more comprehensive and diversified portfolio with 17 percent market share and attractive cross-selling opportunities. The company claims the acquisition is 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 more diverse revenue base to increase scale and 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. 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 also will likely generate operating cash flow of more than 1.5 times Zimmer’s stand-alone estimates. Accordingly, with strong cash flow, Zimmer is expected to be able to maintain a stable dividend of 15 percent to 20 percent of net income following the closure of the transaction. Full-year 2015 guidance for the combined company will be provided once the merger is completed.