Rival steps in for Centerpulse

Centerpulse CEO Max Link has welcomed the merger swissinfo.ch

The British medical devices firm, Smith & Nephew has offered to buy Switzerland's Centerpulse for £1.5 billion (SFr3.25 billion).

The deal, which has the backing of Centerpulse’s board, will create the world’s third largest orthopaedics company.

Centerpulse on Thursday also announced that it had been on a “dynamic growth path” in 2002, making a net profit of SFr337 million.

A joint statement said that the deal would be made by a new holding company called Smith & Nephew Group, issuing a recommended offer for Centerpulse and for InCentive, a listed company which holds, or has the right to hold, 19 per cent of the issued share capital of Centerpulse.

Centerpulse and InCentive shareholders would collectively own 24 per cent of the combined group.

S&N said it would pay 25.25 new Smith & Nephew Group shares and SFr73.42 in cash for each Centerpulse share.

This values the Centerpulse shares at SFr282 each, SFr5 more than the price at which they traded at the close of the bourse on Wednesday.

Industry giant

The British firm said the deal, which would create a company with a market value of around £4.7 billion, would boost earnings per share of the combined group – before integration costs – by mid-single digits in 2005, accelerating to double digits in 2005.

“We are delighted to be creating, with Smith & Nephew, one of the world’s leading orthopaedics companies which will have increased strength and the resources to prosper as a global player in its sector,” commented Centerpulse chairman and CEO Max Link.

“We believe that a combination with Smith & Nephew represents an attractive opportunity for shareholders and strongly recommend Centerpulse shareholders to accept the offer,” he added.

The statement said that the combined group would derive about 74 per cent of sales from the orthopaedics sector (joint implants, trauma, arthroscopy, spine and dental implants).

In the implants sector, it would have the number three position worldwide in hips, and number four in knees.

Costs

Integration costs are expected to amount to £45 million a year by 2005, requiring exceptional cash costs of £130 million to implement.

The Smith & Nephew Group will assume Centerpulse’s outstanding debt, which stood at SFr358 million at the end of last year.

S&N’s chief executive officer Chris O’Donnell said the deal was an “important strategic step” for both companies.

“It brings together two highly complementary businesses, transforming the scale of both of our orthopaedics businesses, as well as providing an enhanced position in the rapidly growing spine segment,” he said.

Bargain price

Some industry analysts expressed surprise that the offer made by the British company was so low.

“I’m astonished that the offer is not much more than the market value and somebody might come in with a better offer,” commented Claude Zehnder of Zuercher Kantonalbank.

Others were more optimistic. Max Herrmann of ING Financial Markets said: “They are paying a low price but they are taking on the risk of some of Centerpulse’s liabilities.”

Michael King, an analyst with WestLB Panmure, said S&N could be getting a good deal.

“It basically seems that they are [buying] Centerpulse quite cheaply and they have said the combined group is going to be earnings-enhancing in 2004.”

Legal settlement

O’Donnell stressed that S&N was “comfortable” that past litigation against Centerpulse had been cleared up.

He said Centerpulse had done “excellent” work in putting a very solid wall around this litigation”.

Formerly known as Sulzer Medica, Centerpulse was hit in 2001 by legal action against faulty hip and knee implants. The firm agreed to pay a $1 billion settlement in the United States in May last year.

The deal is conditional, among other things, on the approval of Smith and Nephew shareholders and regulatory clearances. It is expected to be completed towards the middle of this year.

swissinfo with agencies

Centerpulse merger

The British firm S&N has made a bid of SFr3.25 billion for Switzerland’s Centerpulse.
If the deal is approved, the combined businesses would create the third largest orthopaedics company.
The new S&N Group would assume Centerpulse’s debt of SFr358 million.
Centerpulse, formerly Sulzer Medica, made a net profit of SFr337 million in 2002, from a loss of SFr1.193 billion 2001.
Earnings before interest, tax, depreciation and amortisation (EBITDA) rose 43 per cent to SFr341 million, while sales rose four per cent to SFr1.47 billion.