CS highlights impact from Zimmer-Biomet deal at Smith & Nephew

25th Apr 2014 11:41

Credit Suisse has reiterated its 'neutral' recommendation for medical devices group Smith & Nephew, highlighting the pros and cons with the recent consolidation in the wider industry.Sector peer Zimmer announced plans on Thursday to buy orthopaedic products firm Biomet for $13.35bn.Through the acquisition, Credit Suisse estimates that Zimmer will hold a 40% share in the global major joints market. This compares with 23% at Johnson & Johnson, 22% for Stryker Corporation and just 12% at Smith & Nephew. Zimmer will also have "substantially enhanced" market positions in the spine, trauma and dental implant markets.Credit Suisse said that Smith & Nephew could benefit from "turbulences" which are common to industry combinations such as the improved availability of experienced sales reps. "Longer term, however, we fear that the impact of relative size and cost disadvantages of SN compared to the leading reconstructive players might have negative effects."Besides, we think the planned merger also puts SN at a disadvantage in collaborating with key opinion leaders in R&D as well as contracting with hospitals (e.g. via bundling)."On a positive note, the bank said that some may view the Biomet sale price as an indication that Smith & Nephew is undervalued. It estimates that Smith & Nephew trades at an enterprise value-to-sales ratio of 2.9.Credit Suisse kept a 856p target price for Smith & Nephew ahead of its first-quarter results on May 1st.The stock was down 0.1% at 908.5p by 11:40 on Friday.BC