June 7, 2007
Biomet's Tender Offer
Biomet, Inc., the orthopedic company, announced today that it had agreed to an increased offer from a private equity consortium to acquire Biomet for $46.00 per share in cash, for an equity value of $11.4 billion. The increase comes on the heels of a recommendation by Institutional Shareholder Services that Biomet shareholders vote against the transaction. ISS based this recommendation on that fact that "[a]lthough the deal terms appear fair as of the time of the deal's announcement in December, the rally of the peer group" and Biomet's main joint reconstruction business "imply that there is little takeover premium in the [previous] $44 offer price." (For more on this recommendation, see my previous blog post ISS Recommends Against Biomet Deal)
In connection with the increase, Biomet also revised the structure of the acquisition from a merger to a tender offer. The amended merger agreement now requires the consortium – which includes affiliates of the Blackstone Group, Goldman Sachs Capital Partners, Kohlberg Kravis Roberts & Co. and TPG – to commence a tender offer on or before June 14, 2007, to acquire all of the outstanding shares of Biomet’s common stock. Biomet previously planned to have a shareholders meeting to vote on the merger agreement on June 8, 2007. That meeting is now canceled.
Per the Biomet Certificate of Incorporation, a merger must be approved by at least 75% of Biomet’s common shares. Since the vote is based on the number of common shares outstanding rather than the number of votes cast, this would have meant that any failure to vote and broker non-votes would effectively have been votes against the transaction.
In converting to a tender offer structure Biomet has fiddled with the minimum condition. According to Biomet:
Completion of the tender offer is 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. The amended merger agreement permits the investor group to revise the condition regarding minimum acceptance of the tender offer to decrease the minimum acceptance threshold to a number that, together with shares whose holders have agreed to vote to approve the second-step merger, represents at least 75% of the Biomet common shares.
The second sentence is a bit unclear to me and Biomet has yet to file the amended agreement. But it likely means that the private equity group and Biomet agreed to the provision in order to obtain agreements to vote from management in connection with the tender offer. If this is the intention, I'm still not sure why there was a need to convert to a tender offer -- the transaction could have closed quicker had Biomet simply postponed or adjourned the shareholder meeting and management could have also voted for the transaction then. But my hunch is that in this language there is an effective lowering of the required shareholder approvals. I'll have more once the amended agreement is actually filed.
Note to Biomet shareholders: there are no dissenter's rights available under Indiana law for this transaction (a different result than in Delaware; Biomet is organized under the laws of Indiana).
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