Biomet accepts $11.4 billion takeover offer

Biomet on Thursday accepted a sweetened takeover bid of $11.4 billion (5.76 billion pounds) from a group of private equity firms after an influential proxy advisory service urged the orthopedic device maker's shareholders to reject a previous $10.9 billion offer.

The buyout group, which includes Blackstone Group, Goldman Sachs Capital Partners, Kohlberg Kravis Roberts & Co. and TPG, will pay $46 a share, up from its original offer in December of $44 per share.

The group will begin a tender offer by June 14 to acquire all of the outstanding shares of Biomet, based in Warsaw, Indiana. At least 75 percent of the shares must favor the deal.

Biomet shares rose $1.35, or 3 percent, to $45.55 in afternoon trading on Nasdaq, close to the offer price, suggesting that investors think the 4.5 percent increase in the price will get shareholder support, traders said.

"It's not a knockout new price, but it's an acknowledgment that the previous offer was not going to get the job done," said on arbitrageur who declined to be named.

The raised offer came after proxy advisory firm Institutional Shareholder Services recommended Biomet shareholders vote against the original $10.9 billion offer, saying the price was too low. ISS said the hip and knee reconstruction market had improved and shares of Biomet's peers had rallied.

"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.

PREVIOUSLY BALKED

Some Biomet shareholders, such as Peter Schoenfeld, the chief executive officer of P. Schoenfeld Asset Management LLC, had previously balked at the original offer of $44 a share. Schoenfeld could not immediately be reached for comment on Thursday.

Biomet's stock currently trades at about 24 times Wall Street's earnings estimates for 2007, which is above the average valuation for the rest of the health-care equipment sector of 21 times earnings. Yet some of Biomet's closest rivals trade much higher, such as Stryker , which trades at 27.5 times earnings forecasts.

The new buyout offer values Biomet at 25.4 times earnings estimates.

Morgan Stanley, which advised Biomet, told the company's board that, as of June 6, the sweetened offer was fair from a financial viewpoint, Biomet 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," the buyout group said in a statement.

Biomet canceled a special shareholder meeting slated for tomorrow to vote on the original takeover offer. As part of the revised merger agreement, Biomet has agreed not to pay its annual dividend.

One issue recently weighing on shares of Biomet was the disclosure last month that federal prosecutors have subpoenaed company documents related to products now manufactured, marketed and sold by its subsidiary EBI Ltd.

Banc of America Securities and Goldman Sachs & Co. advised the private equity group.

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