The Battle for the Hearts and Minds of Centerpulse Shareholders
BY EDITOR, JUNE 2, 2003
Smith and Nephew (SNN) appeared to be gaining ground last week against Zimmer's strong bid to acquire Swiss based Centerpulse as the Financial Times of London published a series of stories that called into question the stability of Zimmer's offer. Zimmer's prospective offer (it isn't official until June 17th) was conditional which raised the possibility that Zimmer's 350 Swiss Franc bid would decline. Unnamed sources in the articles also hinted that SNN might be willing to raise its own offer of 282 Swiss Francs fairly substantially. In a couple of short press releases, SNN management reminded the street that the Board of Centerpulse had unanimously accepted Smith & Nephew's offer and recommended it to their shareholders. Furthermore, the European Commission has now granted regulatory clearance for the Smith & Nephew and Centerpulse combination.
And a growing issue during the week was, "What Did Zimmer Say and When?" When was the last time you saw one company issue a press release to "clarify" the comments of another company? That's exactly what Centerpulse's management did to Zimmer the day after Zimmer launched its takeover bid for Centerpulse. The "clarification" was as follows: according to Centerpulse, Zimmer was included in the process to sell Centerpulse but declined to participate. Indeed, according to the press release, Zimmer had been invited to bid for Centerpulse on a "number of occasions" but, again, declined. Boy, I must have had my hearing aide turned down at Zimmer's analyst meeting in New York. I sure came away with the impression that Centerpulse had surprised and disappointed Ray Elliott with their exclusive deal with Smith and Nephew. To me, Ray sounded like he had been denied the opportunity to bid at that key moment when Smith & Nephew made their deal.
Confusing. But...an interesting point in the battle for Centerpulse shareholders' hearts and minds. The sub-text, of course, is that Zimmer's public statements are conditional and therefore unreliable. And that notion, we think, gave Smith and Nephew some ground in the battle for the hearts and minds of Centerpulse's shareholders.
Then, late last week, Zimmer appears to take much of the wind out of Smith & Nephew's argument by dropping two key conditions to its offer and in the process congratulated Centerpulse on its professionalism.
Four-Way Transaction? With Centerpulse's announcement that it had hired American banker Goldman Sachs (how ironic is it that Zimmer's banker is Swiss based CSFB?) the transaction now appears to have four parties: Smith and Nephew, Centerpulse shareholders (particularly CEP's largest shareholder, InCentive AG), Centerpulse board and management and Zimmer. At the moment the only truly independent party appears to be Centerpulse shareholders. On June 17th, Zimmer will make its offer formal. Within days, if not hours, we would expect Smith & Nephew to respond and soon after, Centerpulse Board will meet to evaluate the offers. The board will render its decision and...it may not matter. According to Zimmer, this offer is to Centerpulse's shareholders directly. If Zimmer receives enough shares to take control, it will. Even if Centerpulse's board recommends that shareholders tender to Smith & Nephew - again.
