Smith & Nephew to Launch $11 Billion Bid for Biomet

Europe's biggest medical device maker, Smith & Nephew, is close to bidding about $11 billion for its U.S. rival Biomet, sources familiar with the situation said Sunday (Play-By-Play: Conditions Right For More Merger Mania).

One of the sources told Reuters bids were due by Tuesday and other companies were also likely to submit offers for Biomet.

S&N, which would not comment, said on Nov. 2 it had held "very preliminary talks" over a tie-up with Biomet. Combining S&N and Biomet would help the two companies close the gap on the
market leaders for joint implants -- U.S. groups Johnson & Johnson, Stryker and Zimmer.

Analysts have said a tie-up would probably take the form of an offer by S&N for Biomet pitched at between $10.5 billion and $12 billion, although a deal between the two is not certain since the U.S. company is likely to attract interest from rivals.

S&N has long been tipped as a bidder for Biomet, which hired investment bank Morgan Stanley in April to consider its strategic options after long-time Chief Executive Dane Miller resigned.

A source close to the matter told Reuters earlier in the year that the two companies held talks this summer, but no offer was made at the time.

Higher Margins

S&N Chief Executive Chris O'Donnell has said in the past he saw disadvantages to S&N being smaller than its major U.S. rivals and economies of scale could help improve margins.

But he has also cautioned that achieving cost savings in sales forces would not be easy, given the specialist nature of the products being sold.

The move on Biomet marks S&N's second recent attempt to grow via large-scale acquisition. It bid for Switzerland's Centerpulse in 2003, only to be beaten out by Zimmer. It may face stiff competition this time round, too.

The Sunday Telegraph newspaper reported that S&N could face rival trade buyers such as Johnson & Johnson, Stryker and Zimmer, while the Sunday Times newspaper said a private equity bidder may prove the main opposition for S&N.

S&N itself is regularly rumored as a takeover target for larger U.S. peers and industry analysts believe an unsuccessful attempt to acquire Biomet could leave it vulnerable.

Makers of joint implants have enjoyed strong sales growth in the past few years, driven by technological innovation, an aging population and increased demand for elective surgery among the "baby boomers." But more recently investors have become concerned about pressure on prices charged for devices.