Biomet Swept Up in Buyout Wave

The maker of artificial joints agrees to a $10.9 billion takeover offer from private equity firms

Private investors are shelling out $10.9 billion for Biomet, Inc. (BMET), ending the artificial joint maker's months-long search for a buyer during a frenzied time for mergers and acquisitions.

Affiliates of the Blackstone Group, Goldman Sachs Capital Partners, Kohlberg Kravis Roberts & Co. and TPG are buying the company. The deal, subject to customary approvals, is expected to close on or before Oct. 31 2007, after which Biomet will stop trading publicly and keep its headquarters in Warsaw, Indiana.

Separately, Biomet also announced that it will delay its earnings results for the quarter ended Nov. 30, which had been scheduled for release on Dec. 20, amid a review of its historical stock option practices. The company said preliminary, unaudited net sales during the quarter gained 5% to $520.3 million, including the $6 million impact of foreign currency.

"As an independent, private company with the strong backing of private equity partners who recognize our potential for growth and support our dedication to providing our patients the best in innovative, high quality medical products, we will be in an even stronger position to deliver on our commitment to them and their doctors, as well as our team members and the communities in which we operate," said CEO Daniel P. Hann.

Under the merger agreement, Biomet shareholders get $44 per common share, representing a 27% premium over Biomet's closing price on April 3, 2006. Investors will put up equity and also use debt financing from Bank of America and Goldman Sachs.

"While we think the board could have negotiated a higher price and other suitors may still be in the wings, Biomet's culture is fiercely independent, and we think this private deal is a perfect fit," said Morningstar analyst Julie Stralow, CFA in a research note. "A merger with one of its rivals may have proved difficult, in our opinion, given the firm's independent streak."

Biomet's stock fell 1.7% to $41.27 per share in noon trading on the Nasdaq.

"We think the valuation is appropriate based on Biomet's fundamentals and we do not anticipate any additional bids," said Standard & Poor's equity analyst Robert Gold in a research note. He doesn't think the stock option grant probe will affect the deal, either. (S&P, like, is owned by The McGraw-Hill Companies.)

One of Biomet's founders, Dane A. Miller, Ph.D., might be an investor in the private company. Miller had suddenly quit his position as CEO in late March, to be replaced for the interim by the company's general counsel Hann. Then the artificial joints maker confirmed on April 6 that it was thinking about a possible sale.

"We will work in close partnership with Biomet's excellent management while harnessing the extensive resources of our consortium, to build on Biomet's long heritage of success," the investor group said in the press release.

Biomet isn't the only company in the health industry to go for billions in recent months. Boston Scientific (BSX) bought the stent and pacemaker provider Guidant for around $27 billion in January, trouncing the health care giant Johnson & Johnson's earlier deal. The pharmacy benefit management industry has been having tumult too. Express Scripts (ESRX) said Dec. 18 it is offering about $26 billion for Caremark (CRX), throwing a wrench into the company's roughly $20 billion merger agreement with CVS Corp. (CVS) announced in November.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE