Billion dollar Plus merger-Zimmer wants Centerpulse -Does Biomet want the looser?
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DJ Smith & Nephew Calls Time On Centerpulse Fight
Dow Jones News Service ~ August 7, 2003 ~ 1:46 am EST
(This story was originally published Wednesday)
By Michael Reid and Susannah Rodgers
Of DOW JONES NEWSWIRES
LONDON (Dow Jones)--Bowing to the heftier financial clout of U.S. rival Zimmer Inc. (ZMH), Smith & Nephew PLC (SNN) Wednesday walked away from the takeover battle for Switzerland's Centerpulse AG (Z.CEP) by refusing to increase its offer.
Smith & Nephew, the U.K. medical devices firm that put Centerpulse in play with a CHF2.6 billion bid in March, said increasing its offer wouldn't be good for its shareholders. Indeed, Smith & Nephew shares soared on the news and Centerpulse's fell.
"It's a matter of value at the end of the day," Smith & Nephew Chief Executive Chris O'Donnell told Dow Jones Newswires. "Obviously our existing deal is still on the table, and it's more valuable since our announcement this morning."
But asked whether this was the end of the bid story for Smith & Nephew, O'Donnell said: "In reality, yes."
The company's initial offer remains on the table, but because Zimmer's CHF3.2 billion counterbid is worth more, it's almost certain to win the battle for the Swiss firm.
Because both bids contain cash and stock elements, their values have moved since they were first made. But Centerpulse quickly pointed out Wednesday that Zimmer's is still the higher of the two.
"Nothing has changed. We have two offers - a higher and a lower - and it's clear what investors will decide," said Centerpulse spokeswoman Beatrice Tschanz.
Buying Centerpulse would have made Smith & Nephew the world's third-largest player in orthopedics - it's currently No. 6 - but the company was also mindful of overpaying and thereby eroding the financial benefits of the deal.
Instead, Smith & Nephew had tried to play up the cultural elements of any potential tie-up, telling Centerpulse shareholders a deal with Zimmer would jeopardize key customer accounts and lead to job losses and staff defections.
But, in a somewhat philosophical tone, Smith & Nephew CEO O'Donnell said Wednesday: "We are well placed to continue our strong track record of growth and we remain confident of further good progress from each of our businesses."
Walking away could well win O'Donnell even more kudos from shareholders, given that he's opted for prudence instead of personal ambition. O'Donnell has won widespread praise for turning the once sleepy Smith & Nephew into a medical devices firm focused on four areas - orthopedics, wound management, endoscopy and rehabilitation - with above-industry growth.
But throughout years of restructuring, O'Donnell made it clear he wanted to partake in some M&A to give the company more scale in orthopedics.
At 1415 GMT, Smith & Nephew's shares were up 6% at 399 pence. Shares of Centerpulse fell 6% to CHF352.
Most analysts had expected Smith & Nephew to raise its bid. Even though Zimmer has deeper pockets, a higher offer would have at least forced Zimmer to pay more for Centerpulse, even if Smith & Nephew eventually lost.
Max Herrmann, an analyst at ING Financial Markets, said Smith & Nephew's decision "caught everyone short."
The formalities of the deal are still to be completed. The Centerpulse board still has to make a recommendation and those who've already tendered their shares can change their minds. Meanwhile, the Swiss Takeover Board has said InCentive Capital shareholders - who own some 19% of Centerpulse - can vote either way, despite originally committing to Smith & Nephew.
"The Centerpulse board of directors will give its formal recommendation only when the offer period is finished on August 27, but they always said they will recommend the higher offer," Centerpulse spokeswoman Beatrice Tschanz said.
Zimmer Chief Executive Ray Elliott welcomed the news, saying: "We are pleased that our offer remains the superior one and that Centerpulse has indicated it will recommend the higher offer to its shareholders."
Under Swiss law, no further bidders are allowed to enter the ring. The final day for a third party to place an offer was July 31.
Analysts say the world's largest orthopedics players - Johnson & Johnson (JNJ) and Stryker Corp. (SYK) - may have been tempted to enter the fray but were ultimately deterred by the likelihood that European antitrust authorities would object to the deal.
Attention now turns to Smith & Nephew's future.
Some analysts think the company is itself a takeover target, while others think it could gain more scale by grabbing up smaller targets, such as spinal businesses, in Europe.
O'Donnell has been at pains to stress Smith & Nephew's strong prospects alone, and said Wednesday he plans to keep growing the business organically supplemented by a couple of acquisitions a year.
He delivered this message two ways last week: via a flurry of interviews after the company unveiled a 33% rise in first-half net profit to GBP67.2 million; and via a series of advertisements in the financial press unveiling a new logo aimed at making investors and doctors more familiar with what has been a fairly obscure moniker.
O'Donnell reckons that without the deal, S&N could make it to number one in 10 years using innovative products, investment in sales and marketing and some acquisitions.
"Ten years ago, Smith & Nephew was number six in wound management. Today we're number one," he said. "In terms of scale, it's a 10-year process."
(James Hall, Tim Falconer and Antonio Ligi contributed to this report.)
-By Michael Reid; Dow Jones Newswires, +44-207-842-9292, Michael.Reid@ dowjones.com
(END) Dow Jones Newswires
08-07-03 0146ET |
