Zimmer Biomet's Spine Business to Get a Boost with LDR Buy

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In line with its strategy of growth through inorganic expansion, Zimmer Biomet Holdings, Inc. ZBH has gone for yet another mega acquisition. Yesterday this musculoskeletal major entered into a definitive agreement to acquire LDR Holding Corp. LDRH , another renowned medical device maker, for a total deal value of $1 billion.

According to Zimmer Biomet, the inclusion of this French spine device maker will not only bolster its presence in the $10 billion global spine market by significantly expanding its portfolio of innovative solutions, but will also provide it with a leading position in the fast growing cervical disc replacement (CDR) and MIS segments. The company believes this buyout will meaningfully accelerate its Spine business' performance through the incremental revenues associated with its entry into the CDR market and cross-portfolio selling opportunities to both companies' customer base.

Nonetheless, Zimmer Biomet's strong optimism related to this transaction failed to gain much investor confidence at the moment as reflected from the 1.74% drop in the company's share price on yesterday's close.

Transaction Details

According to the definitive agreement, Zimmer Biomet will commence a tender offer to acquire all outstanding shares of LDR Holdings for $37.00 per share in cash, a premium of approximately 64% to LDR Holdings' closing price on Monday, the day just prior to this announcement. The board of directors of both companies has already approved this deal. The transaction is expected to close in the third quarter of 2016 subject to certain customary closing conditions.

To finance this transaction worth $1 billion, Zimmer Biomet plans to use its cash in hand and existing availability under its revolving credit facility. The company also plans to issue $750 million of senior unsecured notes to repay the credit facility. Overall, Zimmer Biomet intends to maintain its deleveraging strategy. 

LDR Holdings and Its Integration Plans

We note that LDR Holdings develops innovative spine surgery devices that may provide improved clinical outcome in the treatment of spine disorders. The company's Mobi-C cervical disc replacement device and MIVo portfolio of products include a range of devices to support lumbar and cervical fusion procedures.

According to Zimmer Biomet, on transaction closure, LDR Holdings will be integrated into its Spine & CMF category. This upgraded segment will be led by Adam Johnson, Zimmer Biomet Group President, Spine, CMF and Thoracic, and Dental. Additionally, Zimmer Biomet plans to complement the Spine business' headquarters in Broomfield, CO by maintaining a significant presence in LDR Holdings' strong technology hubs of Austin, TX and Troyes, France. According to management, this step is meant to leverage talent and product expertise from both the companies.

Financial Benefits of the Transaction

Apart from being a strategic fit and highly complementary to Zimmer Biomet's business model, this transaction is also expected to drive significant financial benefits for both companies post 2017. Zimmer Biomet expects the transaction to accelerate future growth of its overall business. It is expected to be neutral to its adjusted diluted EPS in 2017 and accretive thereafter. However, for 2016, the company has reiterated its earlier provided revenue growth guidance of 2.0%-3.0%.  It has also reaffirmed its 2016 adjusted diluted EPS guidance of $7.85-$8.00. 

Zimmer Biomet currently carries a Zacks Rank #3 (Hold).

Key Picks in the Sector

A couple of better-ranked medical products stocks are Boston Scientific Corporation BSX and ICU Medical, Inc. ICUI . Both the stocks carry a Zacks Rank #2 (Buy).

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BOSTON SCIENTIF (BSX): Free Stock Analysis Report

ICU MEDICAL INC (ICUI): Free Stock Analysis Report

ZIMMER BIOMET (ZBH): Free Stock Analysis Report

LDR HOLDING (LDRH): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Business , Investing , Stocks
Referenced Symbols: BSX , ICUI , ZBH ,

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