Smith & Nephew poised to offer £5bn for US rival Biomet

Smith & Nephew will this week table a £5bn offer for Biomet, an American rival, in an attempt to create the world's fourth largest orthopaedic implants maker.

Securing control of Biomet would create a £10bn company and make up for S&N's failure to buy Switzerland's Centerpulse. It lost out to Zimmer after a lengthy battle in 2003, which propelled the US group into pole position in the orthopaedics arena and left S&N badly in need of a deal to give it scale and assure its long-term survival.

Biomet in effect put itself up for sale in April when it appointed Morgan Stanley to advise on strategic options. The investment bank has set a deadline of tomorrow for final offers, and at this stage S&N is regarded as the favourite to win the group. Rivals Zimmer, Stryker and Johnson & Johnson already control around 20 per cent of the orthopaedics market each, and any move by one of them on Biomet is likely to encounter anti-trust problems.

Analysts expect S&N to fund the takeover through its existing cash resources and by borrowing heavily. Once the deal is closed S&N will have to launch a rights issue in order to pay down some of the debt.

S&N and Biomet together would have 14 per cent of the global orthopaedics market. The two businesses complement each other geographically, with Biomet boasting a big presence in America's Mid-west, while S&N is strong in coastal areas and in southern states.

If S&N faces competition in its quest for Biomet it is most likely to come from private equity, say analysts. The US group is reported to have held talks with the private equity arm of JP Morgan.