Smith & Nephew denies merger or takeover talks

Smith & Nephew today insisted it was not in merger or takeover talks amid speculation that the manufacturer of hip and knee replacements was about to begin informal discussions with private equity-owned US orthopaedics firm Biomet about a £15bn tie-up. The new reports, which came days after the British business was linked to a potential takeover by Johnson & Johnson, suggested the new combined company would remain listed in London and S&N shareholders would get the biggest share of equity. They added that Biomet's relatively large debts of $5.95bn (£3.75bn)would need to be refinanced. Shares in S&N rallied 4.6% in early trading but lost 3% immediately after the company issued a terse statement to the London Stock Exchange denying talks were under way. "S&N has a long-standing policy of not commenting on press speculation, unless there is a regulatory obligation to do so," the company said. "However, exceptionally, S&N wishes to clarify that it is not engaged in any discussions which could lead to a merger or a takeover involving the company." Earlier reports had claimed the US pharmaceutical company Johnson & Johnson made a bid for S&N last month , sending the shares up 9.4% on Monday. The British company is said to have rejected the 750p-a-share offer – which valued the business at £7bn – because it was too low. Today Smith & Nephew shares ended 0.07% up on the day at 685p. The chief executives of S&N and Biomet, David Illingworth and Jeffrey Binder, were due to meet in New York next week but have now cancelled their meeting. S&N is understood to have received a proposal for a merger with Biomet last autumn, but rejected it. It came from bankers unaffiliated with Biomet. Some analysts say that a merger of the two companies offers the best business fit, although J&J has more financial firepower. S&N tried to buy Biomet four years ago but was trumped by a private equity consortium made up of Blackstone, Goldman Sachs, KKR and TPG Capital. Thomas Deitz at Royal Bank of Scotland said: "We believe a merger of the two companies would make strategic sense and create significant cost synergies." A combined company would become the second-largest in the global orthopaedics market, with a 14% market share – behind Stryker, with 15%, and ahead of J&J, with 13%. It would become the world number two in hip and knee reconstruction with a 23% market share, after Zimmer with 24%, and the number three in trauma, with a 13% market share (after Synthes with 50% and Stryker, with 20%). Navid Malik at Matrix said: "A lot of US companies are looking for expansion outside the US. [Sales] volumes are fine but pricing is a major problem." In the long run, the outlook for orthopaedics companies is more positive owing to ageing populations and a rise in diabetes and obesity, which puts pressure on joints.