All the pieces need to fit in the medical device industry, especially when a $13 billion deal to acquire a rival is at stake.
On Thursday, Zimmer Holdings Inc. said it will pay $10.35 billion in cash and issue shares of its common stock valued at $3 billion to Biomet Inc.'s equity holders. The firms said the deal's total value also includes the assumption of an unspecified amount of debt.
Zimmer will have $8 billion in annual sales. The maker of orthopedic implants and other components will assume Biomet's business that includes the design, manufacturing and marketing of orthopedic devices and surgical instruments.
While the acquisition is a true takeover, David Dvorak, president and CEO of Zimmer, said Biomet's strong brand name will result in products and services still carrying the banner.
"We have an incredible amount of respect for Biomet, and we will preserve the name," Dvorak said. "They have built up a very strong identity in 36 years."
In March, Biomet announced a $40.5 million expansion in Warsaw that would create 150 high-paying jobs by 2018. The jobs were to pay an average of $75,000 a year. The company said it was unclear what kinds of positions would be created. Now, it's unclear how the project will proceed now that Biomet has a new owner.
"Creating growth will be a top priority," Dvorak said, adding the company will be analyzing Biomet's development plans in the months ahead. "Warsaw will continue to be our headquarters. We really want to cement this part of the state as the musculoskeletal capital of the world for decades to come."
Such lofty goals demonstrate how fierce competition is in the health care field, said Albert Kohout, a financial adviser who follows the industry as a principal owner at Galecki Financial Management in Fort Wayne.
A spring fever has taken hold of the industry as major medical corporations are jockeying for position. This week, Swiss pharmaceutical firm Novartis AG launched a major overhaul of its business, unveiling a series of multibillion-dollar deals with GlaxoSmithKline PLC in Britain and Eli Lilly & Co. in Indianapolis that heralds more restructuring in the fast-changing field.
Joseph Jimenez, the CEO of Novartis in Basel, Switzerland, said the deals with GSK and Eli Lilly reflect "a very dynamic health care environment" and would reduce overall sales at Novartis but boost its profit margins.
"It's a race to stay atop the health care field," Kohout said. "A lot of companies have a lot of cash on their balance sheets right now and are looking to use it."
Investors are excited about Zimmer's acquisition as shares of the company's stock closed Thursday at $101.97, up $10.52, on the New York Stock Exchange. Its shares are up 41 percent over the past year.
"The stock reaction is a good sign," Kohout said.
And because the companies are similar they should be able to leverage synergies to ensure Zimmer's fiscal health for the long term, he said.
Zimmer anticipates annual savings of about $270 million by the third year after the transaction's closing. About $135 million in savings is expected in the first year. The deal likely will close in the first quarter of 2015.
Biomet was started by Dane Miller, Niles Noblitt, Jerry Ferguson and M. Ray Harroff.
Ferguson views the pairing with Zimmer as a natural fit.
"I think it is a great combination," he said. "It's just two good companies getting together."
Biomet President and CEO Jeffrey Binder said in a statement that the deal will prepare Biomet "to compete as a stronger entity in the medical device industry in the future."
Dvorak said details of the deal will become more clear in the months ahead as staffing and other logistics are ironed out.
Now, instead of the Big Three in the medical device field, Warsaw will be home to a duo, the other being DePuy Synthes, part of Johnson & Johnson.
The acquisition will help Zimmer take on Johnson & Johnson, the No. 1 manufacturer in the now-growing $45 billion market, and Stryker Corp., which it will leapfrog with the Biomet purchase.
Sales and profit have started to accelerate after the recession led patients to delay elective surgeries and insurers to crimp prices. Biomet will increase Zimmer's range of products and expand its geographic reach, said Jason McGorman, an analyst at Bloomberg Industries in Princeton, N.J.
"This will give Zimmer some leverage when they go to hospitals, and help them compete," McGorman said in a telephone interview. Also, "they get a little more in terms of products in other areas, like sports medicine, extremities and trauma, where Zimmer has less exposure."
The Associated Press and Bloomberg News contributed to this story. The current version of the story includes a clarification.