Analysis:
In the past, Zimmer Inc made an offer for Centerpulse, which was declined by the Board of Center pulse giving the reason that the offer was insufficient. In less than a year Center pulse has accepted an offer from a UK based company Smith and Nephew plc, and it has announced the takeover, which has disappointed the management of Zimmer, who were monitoring Center pulse closely. Under Swiss law, any competitive bid can be made within 40 days of the announcement of the takeover, and the board of Zimmer Inc is considering their next move.
The Orthopedics industry has grown rapidly in the past years, and existing companies in the industry had preferred the growth by acquisition to strengthen their products lines, increasing geographical reach and market share and to bring in new innovative technologies.
The acquisition of Center pulse is an important strategic move for Zimmer, in order to enter the European market where it has no share previously, as it is considered the major market with good demand of Orthopedics services and products due to the ageing population.
Acquiring Center pulse means entering the segment of Spine, which is fastest growing segment with the growth of 20%. Zimmer had no business previously and the executives had previously said that they were finding the opportunity to enter the business.Center pulse has 8.9% share in the dental services it provides, which is not aligned with the portfolio of Zimmer but the executives of Zimmer who have previous experience in the service think that they can run the segment successfully.
Zimmer has divested all its cardiac units to restructure the company, which also means that if they acquire Centerpulse they might also divest the cardiac segment of the company.
Center pulse has issues of lack of standardized techniques and products.It had to recall its products previously and had to pay heavy suits previously in the United States and Canada which created uncertainty in the market.However,it has good relations with the European Physicians which has attracted the decision makers in Zimmer.
Zimmer does not expect to retain the management of Center pulse after the acquisition, which can create a problem for them as the union of employees are seeking to protect the jobs, protests against Zimmer can lead to a reputation risk that can jeopardize the deal, Reputation for American companies areal ready deteriorating because of negative view in Europe due to the war in Iraq by United States.
The law in Switzerland for acquisition and takeovers requires the board to act in the best interest of the company and treat the shareholders equally, and it also requires the board to fully inform the shareholders about the offers and treat all bidders equally. It requires providing all the information it has provided the first bidder to the second bidder.
If Zimmer bids for Center pulse and the bid is accepted, then Center pulse would have to pay S&N CHF20 million break fees after the exclusivity period. In case of the bid from Zimmer, the offer should be more than the initial offer made by S&N’s.
Recommendations:
Bid from S&N has been a shock for Zimmer’s management and it needs to act within 40 days’ time to bid for Center pulse, which meansa quick action is needed. Zimmer’s management was already monitoring the performance of Center pulse after the rejection of first offer that was made last year and was waiting for the right time to make an effort again to acquire Center pulse.
It is recommended for Zimmer to make an offer for Center pulse, because it is an important opportunity for Zimmer to expand in Europe, and also to become the number one Orthopedics Company in the world by capitalizing on the growth and lead the market positions. It is hard to grow in Europe without acquiring a company like Center pulse that already has significant share in European market.
Another favorable part of the deal would be the entrance in the Spine business segment, which is growing rapidly and might prove to be a real difference in gaining the competitive edge.
However, Zimmer also needs to consider the issues arising in the acquisition of Center pulse.
The issue of lack of standardized techniques and products for spine disorders needs to be considered.The management might need to heavily invest in the Research and Development to eliminate the problems arising with the products and to create standardized techniques to make sure it ends the uncertainties regarding Spine segment..................................
This is just a sample partial case solution. Please place the order on the website to order your own originally done case solution.
Related Case Solutions & Analyses:
Hostile Bid for Red October
Lex Service PLC: Cost of Capital
RU 486 (A)
Richard Murphy And The Biscuit Company (A)
BANK OF CYPRUS: GROWTH PLANS POST FINANCIAL TURNAROUND
CHINA’S MUSICAL.LY – FACEBOOK OF THE FUTURE?
GETTING YOUR STARS TO COLLABORATE
LOST IN TRANSLATION: DECIPHERING COMPETITIVE STRATEGY FROM FINANCIAL STATEMENTS
S T DUPONT – THE RENAISSANCE OF A FRENCH LUXURY BRAND: BUILDING A STRONG BRAND ACROSS ALL TOUCHPOINTS FOR SUSTAINABLE GROWTH
UNILEVER’S STRATEGIES TO BUILD AGILITY AND RESILIENCE
