A British Buyout for Biomet?

The medical device giant is in talks to be acquired by the U.K.'s Smith & Nephew as it looks to survive in a competitive market

Smith & Nephew plc (SNN) on Nov. 2 confirmed that it has held "very preliminary talks" about a merger with the U.S. medical devices company Biomet (BMET).

The London-based medical technology company made its announcement after the Financial Times reported that the two companies were discussing a deal aimed at creating an orthopaedic specialist worth up to $20 billion and capable of competing against the U.S. sector leaders Zimmer (ZMH) and Stryker (SYK).

"Smith & Nephew is constantly looking at opportunities to maximise shareholder value, including looking at potential strategic acquisitions. In response to recent press speculation, the company can confirm that it has held very preliminary talks with the U.S. medical devices company, Biomet," Smith & Nephew said in a press release. The companies have not yet reached an agreement.

As Biomet loses market share to rivals in a competitive market, the medical device maker had announced in April that Morgan Stanley & Co. is helping it explore ways to improve its shareholder value.

"We are not surprised by the announcement, which has been speculated about for months," said Standard & Poor's Corp. analyst Robert Gold (S&P, like BusinessWeek.com, is owned by The McGraw-Hill Companies.) Gold expects Biomet to continue evaluating its alternatives but would not buy the stock, given that it's already at a "near breakup value." He reiterated his hold opinion on Biomet.

Investors bid up Biomet's stock 1,6% to $38.00 per share in early trading on the Nasdaq -- below its 52-week high of $39.45 reached in April -- while Smith & Nephew's sank more than 2% to $47.40 per American Depositary Share on the New York Stock Exchange.

The London company also reported third quarter results on Nov. 2, including profit of $93 million compared to $62 million during the same period of 2005. Smith & Nephew CEO Christopher O'Donnell said in a press release that the U.S. market has shown signs of strengthening while a number of European countries remain challenging as a result of healthcare spending constraints. "We were particularly encouraged to see a modest recovery in the U.S. orthopedic reconstruction market in the last quarter," O'Donnell said.

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