Biomet bribery probe may stall Zimmer Merger
Biomet Bribery Probe Looms Over Zimmer Merger (Medical Device Online)
The U.S. Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) are reportedly conducting a probe into bribes allegedly made by Biomet Inc. to health providers in Brazil and customs officials in Mexico. The investigation is unlikely to stop the proposed merger between Biomet and Zimmer Holdings Inc., but Biomet could face stiff penalties.
According to confidential documents obtained by the New York Times, an anonymous email from a whistleblower sent in October 2013 tipped Biomet’s officials that its local distributors in Brazil had been “paying kickbacks” to government physicians to entice them to buy the company’s orthopedic devices. Days later, the company’s customs broker in Mexico reportedly told Biomet that dental device shipments coming across the border were handled “in an irregular way,” implying that bribes were made to Mexican customs officials, the NYTreported.
In response, Biomet fired erring employees and reported misconduct to government officials, according to theNYT. The company in April and May also presented evidence of the dealings in Mexico and Brazil to investigators after receiving an SEC subpoena. In July, Biomet informed lawyers representing its employees that it was fully cooperating with investigators. The NYT said that Biomet’s lawyers are currently talking with investigators to settle the probe promptly in order to safeguard the merger with Zimmer. The report also noted that Biomet informed Zimmer of the investigation during its merger talks.
In April, Zimmer announced its acquisition of Biomet for $10.35 billion in cash and $3.0 billion in common stock, according to a previous Med Device Online article. The deal is the fifth largest medical device industry transaction in the past decade.
According to the NYT, Biomet’s willingness to cooperate with investigators could draw lenient penalties. The report cited Biomet’s previous bribery case in 2012 when the DOJ fined the company $17.28 million, or 20 percent of the minimum penalty mandated under federal guidelines. It also worked out a deferred prosecution agreement and avoided criminal charges.
Due to the repeat nature of the alleged dealings, however, the probe could result in stiffer penalties and criminal charges for Biomet, the NYT noted. If that happens, Biomet will likely be restricted in participating in federal healthcare programs for a limited time, and Zimmer will be prompted to restructure the deal at a lower price.
The $13.4 billion merger between two of the medical device industry’s biggest companies has drawn scrutiny from regulators. The European Commission and the U.S. Federal Trade Commission (FTC) recently asked Zimmer and Biomet for additional information regarding the deal. The nature of the additional information being asked has not been disclosed by both bodies.