Private Equity News & Analysis

Buyout bigs back $11bn orthopedic deal

Blackstone, Goldman Sachs, KKR and TPG have agreed to take private Biomet, a maker of replacement joints, alongside the company’s founder. At the same time, Biomet is investigating stock option back-dating practices approved by senior management.

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Biomet, a maker of hip replacements, knee replacements and other orthopedic products, has agreed to a $10.9 billion (€8.3 billion) privatisation sponsored by The Blackstone Group, Goldman Sachs Capital Partners, Kohlberg Kravis Roberts and Texas Pacific Group.

Also expected to invest in the deal is one of Biomet’s founders, Dane Miller, who resigned from his post as president and chief executive of the company last March. The company is currently conducting a search for a new CEO.

The private equity group will pay a 27 percent premium over Biomet’s closing price on April 3, 2006. On April 6, 2006, Biomet retained Morgan Stanley to explore strategic alternatives for the company. Since the beginning of 2005, Biomet’s share price has fallen steadily from a high near $50 per share down to roughly $30 per share, before reversing course in April.

The board of directors of Warsaw, Indiana-based Biomet has unanimously approved the agreement.

Debt financing will be provided by Bank of America and Goldman Sachs.

In a statement, the private equity group noted that Biomet’s products are used in “surgeries that are becoming increasingly frequent as the population ages”.

In a separate development, Biomet today released an initial statement regarding an independent committee’s investigation into possible stock option backdating practiced by the company. While noting that its findings are still preliminary, the committee found that “[i]t appears. . . that a substantial number of the stock option grants made by Biomet. . . were issued as of dates other than the dates on which the grants were actually made to take advantage of a lower stock price on the date of issue. It also appears that some members of senior management were aware of this practice, though they may not have been aware of the accounting and legal ramifications of this practice.”

Scores of executives across the US corporate landscape have been forced to resign in recent months following revelations that stock options granted them had been backdated to low price points in the shares’ trading histories, a breach of accounting rules.