FTC Sends “Second Request” to Zimmer/Biomet

The Federal Trade Commission (FTC) has sent Zimmer Holdings, Inc. and Biomet, Inc. a “Second Request” for additional information in connection with their proposed merger.

According to former FTC attorney Darren Tucker, only about 4% of all deals receive a formal second request for information. Tucker worked on the Johnson & Johnson/Synthes merger while at the agency. This second request follows European regulators pausing their review of the deal until further information is provided by the companies.

Tucker, now at Bingham McCutchen, told OTW on July 2, 2014, that the issuance of a second request is not surprising, given the sizable overlaps between the two companies. “The parties still have good prospects for FTC approval of their transaction without conditions, on account of the three strong rivals that will remain in the hip and knee segments and the sophistication of the customers.”

Second Request

He said the second request gives the FTC an opportunity to obtain additional information from the parties, their customers, and other market participants.

“At the Second Request stage, the FTC can compel documents and information from third parties, rather than rely on voluntary submissions. Some of the things the FTC will be looking at include the extent to which the parties’ ordinary-course documents discuss competition between the firms, the frequency and intensity of competition between the two firms for sales, the similarity of the two firms’ products, the ability of rivals to reposition their product offerings in response to the merger, and potential efficiencies from the transaction, ” added Tucker.

Compliance with a second request, according to Tucker, typically takes about five months, followed by an additional one-month waiting period for the FTC to make an enforcement decision.

“Quick Look”

However, when the FTC’s concerns are less serious or are focused on a particular area, Tucker said it may do a so-called “quick look” investigation, which focuses on one or two dispositive issues while deferring compliance with the full second request. “It would not be surprising for the FTC to do a ‘quick look’ investigation here, focusing on the ability of customers to obtain competitive products from other suppliers in the event that the merged firm tried to raise prices post-transaction.”

Bank of America analyst Bob Hopkins estimates that a Zimmer/Biomet combined shoulder market share would be roughly 50% and in partial knees, the merged companies would be the #1 player. In Hopkins’ view, if Zimmer/Biomet need to divest one of their shoulder or partial knee businesses, “there would be ready buyers for either.”

A statement from Zimmer said the companies still expect to close the transaction in the first quarter of 2015.