Medical Device Daily

In the wake of influential proxy advisory service Institutional Shareholders Services ’ (ISS; Rockville, Maryland) recommendation last week to Biomet (Warsaw, Indiana) shareholders to reject a private buyout (Medical Device Daily, May 31, 2007), the group of investors led by the Blackstone Group sweetened its offer for the orthopedic company, uppingthe offering price from $44 a share to $46 a share, which increases the deal’s value from $10.9 billion to about $11.4 billion.

“Although the deal terms appear fair as of the time of the deal’s announcement in December, the rally of the peer group” and its main joint reconstruction business “imply that there is little takeover premium” in the original offer of $44 per share, the ISS report said.

One significant shareholder, P. Schoenfeld Asset Management of New York, which holds about a 0.5% stake in Biomet, had already threatened to vote against the offer, and other investors were almost certain to follow had the group not elevated its offering price.

Under the terms of the revised merger agreement, the consortium — which includes affiliates of the Blackstone Group, Goldman Sachs Capital Partners, Kohlberg Kravis Roberts & Co. and TPG — will commence a tender offer on or before June 14, to acquire all of the outstanding shares of Biomet’s common stock. Following completion of the tender offer, the consortium will complete a second-step merger in which any remaining common shares of Biomet will be converted into the right to receive the same per share price paid in the tender offer.

The $46-per-share offer price represents a premium of 32.3% over the closing price of Biomet’s common stock on April 3, 2006, the trading day prior to public speculation that the company was exploring strategic alternatives.

“We believe the proposed price for the transaction is fair to Biomet’s shareholders. We also believe that the investor group’s tender offer will deliver superior value to Biomet’s shareholders in a more efficient and more immediate fashion than the process provided by the original merger agreement. Moreover, this revised offer provides greater certainty and visibility to completion of the transaction,” said Niles Noblitt, chairman of Biomet’s board of directors.

In a statement, the consortium said: “Our offer empowers current shareholders who have an economic interest in Biomet common shares to realize significant value in a timely manner and represents the absolute limit of our ability to structure an appropriate buyout of Biomet. We are pleased that the consortium will be in a position to provide the company with financial and operational resources to support its future growth.”

Completion of the tender offer is still subject to the condition that at least 75% of the Biomet common shares have been tendered in the offer — the same percentage approval requirement as with the previous merger structure.

As a result of the revised merger agreement and tender offer, Biomet reported that it has cancelled the special meeting of shareholders previously scheduled for today to consider and vote on the original merger agreement first disclosed this past December. As part of the revised merger agreement, Biomet has agreed not to pay its annual dividend.

In another piece of Biomet-related news, the company reported that two of its principal officers, Charles Niemier and Garry England, have decided to retire. Niemier and England are 27-year and 26-year veterans of the company, respectively.

The company also reported that it received a letter from the NASDAQ Listing Qualifications Panel stating that it has evidenced compliance with the Panel’s prior decisions and all applicable NASDAQ Marketplace Rules, and that the Panel has determined to continue the listing of Biomet’s common shares on the NASDAQ Global Select Market.

Morgan Stanley & Co. Incorporated is acting as financial advisor to the board of Biomet. Kirkland & Ellis LLP is legal counsel to Biomet and Simpson Thacher & Bartlett is legal counsel to the independent directors of the board of Biomet. Banc of America Securities is acting as lead M&A advisor and Goldman, Sachs & Co. is acting as M&A advisor to the private equity consortium. Cleary Gottlieb Steen & Hamilton is acting as legal advisor to the private equity consortium. Banc of America Securities and Goldman Sachs & Co. advised the private equity group.