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Dennis Oman Mukobe,

Professor: Darrell E. Brown, Ph.D.


Course Number: D302
Spring 2016
03/02/16
CASE 2 REVIEW: ZIMMER HOLDINGS (A): ACQUISITION OF CENTERPULSE,
SWITZERLAND:
The article is about Zimmer Holdings (Zimmer) an orthopedic devices firm based in Warsaw,
Indiana and the top Executives were engaged in an intense discussion. A publication in the Asian
Wall Street Journal stated that Smith & Nephew plc, (S&N) a U.K. based competitor, had
announced a takeover of Centerpulse, a Swiss firm. Zimmer had made an offer and failed to
take over Centerpulse, they faced a challenge that many International Businesses encounter as
we shall review below:
ORTHOPEDIC DEVICES INDUSTRY:
Zimmer involved in Orthopedics, a surgical science to correct disorders, diseases and injuries of
the bones and joints by reconstructing defective. The company had clearly invested in a major in
health care practice around the world, which created a niche customer base in the orthopedic
devices industry. Treating severe cases of back pain, with a variety of spinal implant operations
like rods, plates, hooks and screws, manufactured from stainless steel and titanium, clearly
sighting the opportunity for high growth rates in this business with an attractive market.
Economics of Orthopedic Surgery:
Surgical procedures growing in the United States, a market of 190 million people worldwide
and expected to expand. Any Global device manufacturer would be expected to favorably
compete, thus offer better surgical products, which can cost US$10,000 to US$20,000 in the
United States, a clear indication of its high profitability. This lead to manufacturers such as
Zimmer having to plan better corporate strategy, to have a formidable market share to capture
profits from attractinesss of the increasing cost of implants.
Competitive Dynamics:
The attractive orthopedic device industry, targeted by top competitors, with three of the top firms
having corporate headquarters in Warsaw, Indiana, A home to several component manufacturers
and suppliers, Zimmer would have an edge in consolidating its advantage, by acquisitions,
purchases of the leading device makers, helping to strengthen their product line, bring in new
innovative technologies and galvanize their geographic reach form the domestic to the Global
arena and this highly rates stock performances of the top firms.
Research and Product Development:
Investments in research and development (R&D) improves surgical and disease management
products. Leading to Innovative New implant technologies and advanced surgical techniques
within the industry where Zimmer pioneered the minimal invasive surgeries (MIS) that
decreased surgical times, reduced pain, reduced operative complications. It lead to improved
speed of functional recovery, cost-saving benefits and profitability into expansions in Europe.
Marketing and Distribution:
Sales and marketing personnel of the company were expected to be experts relating to products
and processes. Then target orthopedic hospitals, the major customers to the manufacturers and
their distribution channels. Challenges include the differences in health care reimbursement
across countries that negatively impacted local sales and marketing practices and increased
inventory costs, an indication that a strong relationship the surgeons and comparative
professional knowledge was crucial to the success over pending entry barriers.
Emerging Challenges and Opportunities: ZIMMER HOLDINGS
Growth expectations and the focus on Economies of scale preempted the need for consolidation
in order to harness the market. Top competitors had multiple expansion opportunities to develop
new standards of care, courtesy of major device manufacturers and leading research institutions.
Started by Justin Zimmer in Warsaw, Indiana, the business created aluminum splints, the start-up
had tremendous success that introduced several new products. Raising the company profile in the
orthopedics industry that attracted Bristol-Myers, a pharmaceutical company with more capital to
promote growth sizable as a global player, later merging with Squibb to put the company in the
top 10 global pharmaceutical companies.
In 2002, Zimmer emerging as second in the global knee market, third in the global hip market
and fourth in the global trauma market, captured a significant market share in different products
and geographies. Due to the strategic audit by management, the decision to focus on acquisitions
built its growth potential in the global market and further assessing their strengths, weaknesses,
threats and opportunities in Europe versus Asia versus the U.S And eventually to improving
operational effectiveness in Europe which was a large market.
The suggestion to buy a company would expand company size enough in Europe which was a
good strategy in an attempt to consolidate and capture a larger market share in the spine business.
It would eventually culminate into an integration of the American Hospital Supply Corporation
with Baxter Laboratories to achieve the overall objective.
SULZER CORPORATION AND CENTERPULSE: THE ACQUISITION MOVE
Sulzer Corporation (Sulzer), a manufacturing and cast-iron production company was one of the
oldest Swiss engineering and manufacturing firms. It had expanded on its product and service
mix into pumps, surfacing technologies and chemical production equipment but later ventured
into medical technologies becoming the Sulzer Orthopedic Technology Center and later led to
the birth of Centerpulse.
Centerpulse was a target for Zimmer. Attractive due to its surgeon relationship sand highly
respected brands, and possession of the Winterthur manufacturing facility. They had good
platforms in the spine and dental markets that came with good European physicians, strengths
that could have been built upon through a successful acquisition. Zimmer should have focused
on creating an integrate businesses, with new streamlined organizational structure that could
have made them number one in the U.S, Europe and Japanese market.
Although the company waste clouded by Centerpulse product liability claims, they were later
settled and Centerpulse managed to expand employment in 80 countries and operate five
manufacturing plants around the world. Effectively transferring the competitive edge to S&N, in
a bid for Centerpulse,
Approved by the boards of both companies, it resulted into a combined company that brought
together two complementary businesses, sharing cultural similarities, the two organizations rose
to number-three position in the global orthopedics industry, thus creating a competitive
advantage over Zimmer and other competitors in the orthopedics businesses.
MERGER AND ACQUISITION PROCESS IN SWITZERLAND
Governed by Securities Exchange Commission (SEC), Federal Trade Commission (FTC),
European Anti-trust Commission and the Swiss Takeover Board (STB) in Switzerland. The STB
issued general rules for compliance with the provisions applicable to public takeover offers, also
governed by corporate law and takeover law.
The flaw discovered that Zimmer managers had not been issued the confidential memorandum,
this information may have guided them into a better decision. They were clearly holding the
competing offer and as mandated by the STB, this could allow them time to reconsider and
extend their initial offer relative to the offer S&N had made.
Bias might have come from social issues portrayed in the Swiss local press about Zimmer, an
American Company on its intentions on the acquisition, it was the time during the Iraq war
putting negative press for American companies. Also the fact that Centerpulses Winterthur
employed people from the local population, governed by a union with stringent job protection
ambitions, it misrepresented the intent to keep the current management,
GOING FORWARD, A RESPONSE TO THE S&N BID
My recommendation is that Zimmer mangers should have gone ahead and reassess their potential
interest and push for a possible hostile takeover, cultural similarities would create synergies a
social issues would have been overcome. Zimmer deserved a second look according to the law to
review the profit potential, market position and promote competition for better technologies.
Capitalize attractive growth in lower European tax laws by expanding manufacturing space to be
top industry player that would then leverage material use, manufacturing capacity and design
technologies, to improve market presence and future investment opportunities derived from the
cask position and the stock market.
Works Cited:
ZIMMER HOLDINGS (A): ACQUISITION OF CENTERPULSE,
SWITZERLAND: By Mark Bickel. Ivey Publishing, Ivey Management
Services, c/o Richard Ivey School of Business, The University of Western
Ontario, London, Ontario, Canada

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