4 Early Observations about the combined Zimmer-Biomet
#1 – The big picture numbers of the deal
Both boards have approved the definitive merger agreement. Closing is expected in early 2015. Total price is $13.35B. Zimmer will pay $10.35B in cash and $3B in Z stock (represents about 17% of outstanding shares). At closing, Zimmer’s shareholders will own 84% of the merged company and Biomet’s shareholders will own 16%. Zimmer will take on all of Biomet’s debt. Zimmer’s market cap is about $17B ($100 per share X 169M shares). Biomet is obviously worth $13B, so this is as much a merger as an acquisition.
#2 – Meet the new #2
The combined Zimmer-Biomet will be the #2 player in Orthopedics behind DePuy-Synthes. However, Zimmer-Biomet will be the #1 total joint company. Today, Zimmer is the #3 player and Biomet is #6.
Total projected annual revenues in 2015:
- DePuy-Synthes $9.9B
- Zimmer-Biomet $8.2B
- Stryker $6.2B
- Medtronic Spine $3.4B
- Smith and Nephew $3.2B
#3 – Cultures are similar because of history and location
The Orthopedic industry, as we know it today, was created in Warsaw in 1895 by a salesman, Revra DePuy, who started making fiber splints that were better than wooden ones. Revra called his company DePuy Manufacturing. J.O. Zimmer was DePuy’s first sales rep in 1905. J.O. would found Zimmer Manufacturing in 1927. In 1977, four people with affiliations with Zimmer, founded Biomet down the street from DePuy and Zimmer. Biomet quickly became a force in the hip and knee market. Historically, these three companies – Zimmer, DePuy and Biomet – manufactured 50% of the hips & knees implanted in the US. In Warsaw, working professionals move back and forth between Zimmer and Biomet in their careers, and their families attend the same schools and churches. Because of this, the cultural integration will be smooth compared to DePuy-Synthes or Medtronic-Kyphon.
#4 – The people integration will be messy
Integration will take years, but many jobs will be eliminated to create efficiencies for the combined company. The press release mentions that there will be annual savings $270M from the combine operations within three years. This will largely come from elimination of people. Sales & Distribution will be the first to be reorganized. Each territory will be analyzed for the best representation. The corporate offices of Zimmer and Biomet are both in Warsaw, IN. Many duplicate jobs in Warsaw will be trimmed over time. People in the smaller divisions are most vulnerable. One of these smaller divisions will win out probably in the 2016 timeframe.
- SPINE – Zimmer Spine is based in Minneapolis. Biomet Spine is based in Denver (Lanx) and NJ. Denver will become the spine division.
- DENTAL – Biomet 3i is based in Palm Beach Gardens, FL. Zimmer Sulzer Dental is based in Carlsbad, CA. Palm Beach Gardens will become the dental division.
- TRAUMA – Both in Warsaw.
- CRANIOMAXILLOFACIAL– Biomet Microfixation is based in Jacksonville. Zimmer does not play in this area.
- BIOLOGICS – Zimmer Biologics is based in Austin. Biomet Biologics is based in Warsaw.
List of Zimmer offices is HERE
List of Biomet offices is HERE