July 19, 2007
Biomet's Tortuous Takeover Route
Yesterday, Biomet filed a preliminary proxy statement to effect a squeeze-out merger of its remaining minority shareholders. The preliminary proxy comes a week after the successful completion on July 11 by a private equity consortium of a tender offer to acquire all of Biomet's shares. According to the acquiring private equity consortium press release, 82.85% of Biomet’s outstanding shares were tendered and purchased in that offer.
The filing is a bit of a surprise. The Biomet amended merger agreement had a top-up option -- a provision which permitted the consortium to purchase, at a price per share equal to the offer price, a number of newly issued shares that would constitute 90.0005% of the total shares then outstanding. Accordingly, the acquiring group could have exercised this option to bring their holdings up to 90% of the company and initiate a short-form merger under Indiana law. This option could have been exercised the day after the closing of the tender offer; a short-form merger also effected immediately thereafter. Instead, the private equity consortium has chosen to complete the acquisition through a long-form merger requiring a proxy and a shareholder vote. The effect is to delay the closing of the deal by another four to six weeks for the shareholder vote. The delay may even be longer because the merger agreement provides for a 20 consecutive day “marketing period” that the consortium may use to complete its financing for the merger and which only begins to run after they have obtained shareholder approval.
Biomet has not publicly explained the reasons for this choice by the private equity consortium. Instead, the transaction participants' only action has been to file this preliminary proxy a week after the closing of the tender offer. But the likely reason for the delayed route it to permit the private equity consortium additional time to arrange permanent financing for the squeeze-out transaction. In the interim, the private equity consortium gets a free period of interest on the approximately $1.5 billion it will cost to squeeze-out the remaining Biomet shareholders.
Ultimately, the conditions in the merger agreement to closing the squeeze-out transaction are so few that it will almost certainly close and Biomet's shareholders will then receive their $46 per share without interest. Still, the remaining Biomet shareholders would be better served by a more communicative policy by the company so they know this. It also would have helped for Biomet's lawyers (Kirkland & Ellis and Simpson, Thacher & Bartlett) to have negotiated a requirement for the private equity consortium to exercise the top-up option if possible instead of leaving Biomet's minority shares outstanding for this period. Practitioners take note.
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