Smith & Nephew gears up for sales force raid on Centerpulse
Thursday 29 May 2003
Smith & Nephew, the artificial hips manufacturer, is readying itself for a raid on the sales force of its European merger partner, Centerpulse, if its deal to buy the Swiss-based group is scuppered by a counter-bid from the US company Zimmer.
Smith & Nephew believes the takeover of Centerpulse by a US group could lead to the departure of many of the group's European sales force.
The City believes Smith & Nephew's £1.6bn bid for Centerpulse is doomed to fail now Zimmer has indicated it will offer £2bn. The US group has been given permission to carry out due diligence and is likely to drop two of the outstanding conditions on its bid within the next few days.
Zimmer had stated its offer would be conditional on there being no disadvantageous tax treatment for a spin-off of Centerpulse's non-core businesses, as well as there being no outstanding liabilities relating to the company's faulty hips, which led to a giant compensation settlement last year. Smith & Nephew argues its bid - cleared yesterday by European competition authorities -is the more certain of the two being, as it is, subject to fewer conditions.
Zimmer is privately confident that it can retain the loyalty of the Centerpulse sales staff. It believes the extra Zimmer products available for sale through Centerpulse's European sales network would mean salesmen could take home heftier commissions.
Smith & Nephew shares have fallen 10 per cent since Zimmer said it planned a counter-bid, which it says it will formalise in the middle of next month.
The failure of its plan to create a European giant in orthopaedics would be a significant blow to the reputation of Chris O'Donnell, its chief executive, who has turned the group around in his five years at the helm.
Analysts believe that Zimmer has the greatest financial flexibility, since its shares are significantly more highly rated than those of Smith & Nephew and it could raise its bid, even if Smith & Nephew increases its own.
Goldman Sachs was yesterday hired by Centerpulse to advise on how it should choose between the two offers.
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