- Stryker and Wright Medical said Thursday the Federal Trade Commission is extending its review of the companies' proposed $4 billion merger. The so-called second request, received Dec. 31, indicates the FTC is asking for more information from both companies to examine competition effects.
- The notice could delay the deal's closing with the two companies forced to answer questions and provide additional paperwork to the regulator. Once FTC has enough information to examine the merger, a 30-day clock kicks off during which regulators can seek an injunction to stop the deal or challenge it in administrative litigation.
- The review does not come entirely as a surprise: Katherine Owen, Stryker's vice president of strategy and investor relations, confirmed to analysts on a Nov. 4 conference call that the company anticipated some level of FTC review in estimating a third quarter of 2020 target for the deal to close. At the time, Owen said Stryker "obviously did extensive due diligence and got very comfortable with what the combined entity would look like."
Even prior to Stryker revealing itself as the buyer, some Wall Street analysts flagged the fact that the two companies' overlapping ankle businesses could present antitrust concerns.
At the time of the deal, analysts at Jefferies estimated that Stryker and Wright Medical together have up to 45% of the lower extremity market, with Stryker's STAR total ankle replacements a $20 million to $30 million product.
Another area of similarity, shoulders, is limited by Stryker's market share, the Jefferies analysts said Nov. 4. "Collectively, anti-trust divestitures could total $50-60mn in sales," the analysts wrote.
Recent Securities and Exchange Commission filings indicated as many as five other companies were interested in a deal with Wright Medical aside from Stryker. In December, media reports indicated Smith & Nephew was interested in filing a higher bid for Wright Medical than Stryker.
Prior to the newly posted second request, analysts at Jefferies wrote Dec. 23, 2019, that "a higher bid seems like a low probability event."
"In terms of the possibility of a bid from SNN, while we believe there is a strong strategic rationale for a transaction, as it would move the company's growth profile higher, the financial aspects of a deal at a price in the $34-$35 range would lead to significant dilution and/or leverage (depending on the deal structure) and a ROIC that doesn't reach 8% by 2025," they wrote.
Stryker and Wright Medical both did not respond to questions in time for publication.