Biomet: Takeover Imminent?

The financial press has reported that Biomet Inc. (BMET), an Indiana-based manufacturer of orthopedic accessories, is set to receive an $11 billion takeover offer from its U.K. rival Smith & Nephew plc (SNN). The company specializes in implants such as hip and knee replacement joints, mainly for older people. This field has been growing for decades alongside the sharp growth in the world’s older population, which is now living longer thanks to improvements in standards of healthcare. The potential of this market over the next few decades will increase even further as healthcare services and standards of living continue to improve in the Third World.

Four large orthopedic device companies and one multidisciplinary giant, Johnson & Johnson (JNJ), are active in this field. In addition to Biomet and Smith & Nephew, which have similar market caps of around $9-10 billion, there is Zimmer Holdings Inc. (ZMH), which has a market cap of $18 billion, and Stryker Corp. (SYK), whose market cap exceeds $22 billion. According to reports, any of these four as well private funds could make a bid for Biomet.

Biomet’s impending sale is no surprise. The fact that it is imminent was made clear during Friday’s trading when Biomet touched an annual high of $40. It reached an all-time high of $50 a share two years ago, but it is believed that the acquisition will close at $45. Last April, Biomet’s CEO and co-founder, Dane A. Miller, stepped down, and the company hired investment bank Morgan Stanley to find it a buyer.

I have a special sentiment for this company. When I first started out on Wall Street 20 years ago, I learned through Biomet that if you are sitting on shares of a company that is excellent in every respect -- market, products and management -- you’ve nothing to worry about if Wall Street enters a downturn, however acute it may be. If you can, be brave, overcome your fear and load up with as many shares as you can, because the recovery will come.

I bought Biomet stock in September 1987 at $1.50 a share (adjusted for splits at that time). After I saw it plummet to $0.75 with the phenomenal crash that happened in the following month, I kissed my money goodbye. I sold it with a sigh of relief in November, only to weep when I saw it back up at $15 at the end of 1991.

BMET 1-year chart:

Published originally by Globes [online], Israel business news - www.globes.co.il © Copyright of Globes Publisher Itonut (1983) Ltd. 2006. Republished on Seeking Alpha with full permission.

Disclosure: Shlomi Cohen holds a position in BMET