Zimmer Aims To Double Annual Budget
Medical advances, which once seemed years away, could be coming closer to reality with Zimmer Holdings Inc.’s spending of $13.35 billion acquisition of Biomet Inc.
According to The Journal Gazette, Zimmer officials are talking almost doubling its annual budget for research and development of new products to $360 million once the deal closes early next year, if the deal closes.
David Dvorak, Zimmer president and CEO, has pledged to retain both companies’ sales forces, increasing his ability to get a broader array of medical devices in front of more prospective buyers.
Should U.S. and European regulators decide the deal will not place too much market share in one entity, Zimmer’s share in worldwide knees market would increase to 40 percent from the current 27 percent.
While combining the orthopedics companies would be a primary player in the $45 billion musculoskeletal industry, the merger isn’t driven by a desire for dominance.
The deal is a matter of survival, giving manufacturers more market share and bargaining power in dealing with hospitals demanding discounts on orders.
Orthopedic device makers also are battling the federal government over the 2.3 percent medical devices tax, imposed to help pay for the Affordable Care Act.
With Dvorak’s commitment to protecting the sales staffs from cuts and increasing research and development spending by 76 percent, Zimmer officials will have to look elsewhere for the $270 million in net annual savings by the third year after the acquisition. Anticipated first-year savings are about $135 million.
Analysts are saying when companies are combined saving are typically in cutting information technology, accounting and procurement jobs as well as consolidating manufacturing into fewer buildings.
Zimmer employed more than 9,000 at the time of the acquisition. Biomet, which is owned by private equity investors, did not provide an employee count in the announcement.
Dvorak has said repeatedly the deal is about growth. Officials from both companies are working together on transition teams, developing plans for each business unit to grow in each geographic area and product area.
It also opens new markets including sports medicine and cross-selling opportunities with one sales person representing products designed by both manufacturers.
James Crines, Zimmer’s executive vice president of finance and chief financial officer, said the company is allocating $400 million for integration costs, including a retention program to reward sales staff who stay with the new company.
The most recently announced projections are for annual earnings per share to increase by $1.15 to $1.20. Zimmer’s 2013 diluted earnings per share were $4.43.
Combining the companies will also create a more diverse and predictable revenue stream.