S&N in waiting game as Zimmer bids £1.8bn for Centerpulse

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The Independent Online

Smith & Nephew signalled yesterday it would wait before making the next move in the bid battle for Centerpulse, after Zimmer formally launched its £1.8bn offer for the Swiss maker of artificial hips and teeth.

Smith & Nephew signalled yesterday it would wait before making the next move in the bid battle for Centerpulse, after Zimmer formally launched its £1.8bn offer for the Swiss maker of artificial hips and teeth.

S&N is expected to delay until next month a decision on whether to return with an improved offer of its own. Its original cash-and-shares bid now sits at a 24 per cent discount to the Zimmer offer.

It has received the support of its bankers to increase the cash portion of the offer, and observers believe it could bid close to £2bn before shareholders veto the deal for being too dilutive to earnings. It is also considering plans for disposals, including that of Centerpulse's dental implants business, to improve the financial case for the deal.

US-based Zimmer, though, has been readying plans for a knock-out bid worth more than £2bn, should S&N force a bidding war. Analysts believe the superior financial firepower of Zimmer, whose shares are much more highly rated than those of S&N, make it the hot favourite to win control. Max Link, chief executive of Centerpulse, told Swiss television yesterday the company had attracted two "credible" bidders and shareholders should take no action for the time being.

About a third of the group's shares are held by Swiss investors, and S&N is counting on an appeal to what insiders call "soft issues". These include the perceived cultural fit between the two European companies in contrast to the Zimmer deal, which would shift control to the US and lead to the replacement of the Swiss board.

Sir Christopher O'Donnell, chief executive of S&N, will be quizzed on his bid strategy at the group's trading update later today. This is likely to throw into stark relief the difference in profit margins between S&N - where they are in the mid-teens - and Zimmer, where they are well over 20 per cent.

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