SMITH & NEPHEW, the FTSE 100 medical devices group, faces a bill of more than £30 million after yesterday pulling out of the race to buy Switzerland’s Centerpulse, a maker of artificial joints.
Smith & Nephew shares jumped more than 6 per cent after the company said it was unprepared to raise its offer for Centerpulse, which last night looked certain to be bought by Zimmer Holdings, the US medical devices group, which has tabled a $3.1 billion (£1.9 billion) offer.
Traders said Smith & Nephew shares had jumped because of the closing of short positions by hedge funds and the allaying of fears that the company might be tempted to overpay for Centerpulse.
Smith & Nephew’s move came as a surprise to investors, who had expected the company to raise its offer to a widely rumoured SwFr370 a share, compared with Zimmer’s offer of just over SwFr350.
Sir Christopher O’Donnell, Smith & Nephew’s chief executive, said: “We decided that there was not enough value generation to take it further.”
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He added: “It’s been a tough decision. We’ve got a lot of opportunities in front of us and we are going to concentrate on them instead.”
He said he was “not concerned from a strategic point of view” that he had failed to secure Centerpulse, whose directors had initially recommended the Smith & Nephew offer back in March.
Analysts said a revised offer from Smith & Nephew of just SwFr370 a share would undoubtedly have been trumped by Zimmer, which outlined its hostile bid in May.
Zimmer shares trade on a higher rating than Smith & Nephew’s, meaning that Zimmer shareholders are less affected by dilution in the bidding process.
If Zimmer completes the acquisition of Centerpulse as expected, Smith & Nephew will receive a break fee of SwFr20 million (£9.2 million). Sir Christopher said the fees associated with Smith & Nephew’s bid would “probably go somewhere north of £30 million”, to give a net figure after the break fee of “around £25 million”.
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Under Swiss takeover law, break fees are controlled, meaning that companies cannot recoup the full costs.
Analysts speculated that Smith & Nephew might itself fall victim to a takeover approach, though this was dismissed as fanciful by others. Some were concerned that Smith & Nephew’s marketplace would become tougher, given that a combined Zimmer and Centerpulse would create the world’s number one orthopaedics company.
Ray Elliott, Zimmer’s chief executive, said: “We understand that the formal process still has several weeks to run but we are pleased that our offer remains the superior one and that Centerpulse has indicated it will recommend the higher offer to its shareholders.”
Max Link, Centerpulse’s chief executive, has said previously that a merger with either Smith & Nephew or Zimmer would be in the best interests of Centerpulse shareholders.
Smith & Nephew shares rose 24¼p to 399¼p.
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Joint leader
ZIMMER HOLDINGS, spun off from the US drugs group Bristol-Myers Squibb, will assume pre-eminence in orthopaedics on completion of the Centerpulse deal.
Zimmer will leapfrog its US rivals Stryker and Johnson & Johnson, leaving Smith & Nephew trailing in sixth place. The market is worth about $14 billion (£8.7 billion) and growing on the demand for new joints.