Kirschner accedes to Biomet takeover


Kirschner Medical Corp. of Timonium said yesterday that it has signed a definitive agreement to be taken over by Biomet Inc., an Indiana medical equipment company, apparently bringing a two-month takeover battle to a close.

Analysts who have followed the four-way battle over Kirschner's future said it was unlikely -- and would probably be unwise -- for rival suitor Maxxim Medical Corp. to raise its bid and try to beat out Biomet for control of slow-growing Kirschner. Early suitor Orthomet Inc. has been out of the picture since July 11, when Kirschner rejected its offer in favor of an earlier Biomet proposal.

Kirschner said it accepted Biomet's proposal to purchase all of Kirschner's common stock for $10.75 a share in cash, or an equivalent value in Biomet common stock. Biomet will select whether to use all cash or all stock in the transaction. If Biomet pays for Kirschner with stock, Kirschner shareholders would receive at least 0.9 shares of Biomet stock for each share of Kirschner stock.

Kirschner shares closed yesterday at $10.375, down 12.5 cents, while Biomet was unchanged at $9.75.

"Kirschner and Biomet are both in the orthopedics business," said Jim Howie, a spokesman for Biomet, a Warsaw, Ind.-based maker of artificial joints and other products. "The last time we looked at them was a couple of years ago. Their stock at that time was trading in the low 20s. Obviously, the stock price is a lot lower, and there are synergies now that we didn't see then."

Mr. Howie said the takeover was unlikely to affect Kirschner's 80 jobs in Timonium, saying Biomet thinks highly of Kirschner management and has never laid off workers.

The tangle began May 25 with Kirschner's announcement that it planned a merger with Minneapolis-based Orthomet Inc., in a deal that would have given Kirschner stockholders 44 percent of the combined company.

On June 27, Biomet offered a $35 million package worth $10 a share that would have given Kirschner shareholders 1.05 Biomet common shares for each Kirschner share. The bid did not include cash.

Maxxim entered the picture July 13 with a bid worth $10.50 a share, or $36 million, on July 13, three days after Kirschner had announced it would accept Biomet's bid. Maxxim raised its bid July 13 to $10.85 a share, and Biomet raised its bid to $10.75 a share.

Kirschner chief executive C. Scott Harrison said yesterday that the company preferred Biomet because it offered Kirschner a definitive agreement, while Maxxim offered only a nonbinding letter of intent to merge.

But the biggest surprise of the takeover contest may have been the fact that it happened at all.

Kirschner lost $14.2 million in 1989 and $6 million in 1990. It was forced to restructure its bank debt in 1991 at a time when the company had a negative net worth, and it lost a federal certificate needed to export some of its products in 1992. The government's action preceded Kirschner's decision to forgo a merger with Henley International Inc., a corporate predecessor of Maxxim.

"Maxxim made a play for them two years ago, and I didn't expect them to have any further interest," said Aaron Shackleford, an analyst with Principal Financial Securities Group Inc. in Dallas. "I don't have the feeling that the two firms had any love for each other."

But the medical products business is facing slow growth, and the rise of managed care threatens to pinch the business further, Mr. Shackleford said. He said medical products firms like Biomet feel that they must grow through acquisitions, and Kirschner was valuable because there are few candidates.

"There are not a lot of companies for sale that are in decent shape," said Lawrence Walsh, who follows Kirschner for Wheat First Butcher Singer Inc. in Richmond, Va. "Kirschner has a good balance sheet and some good products."

He said Kirschner has put itself back on track since the arrival of Dr. Harrison in 1991. The company righted its balance sheet by selling a 20 percent stake to Figgie International Inc. in 1992, which it used to pay down its bank debt and invest in new product development. Kirschner earned $2.3 million last year on about $67 million in sales. Operating earnings from businesses Kirschner still owns were about $1.6 million.

"There usually is a lag between when a company fixes its problems and when it gears up for growth," Dr. Harrison said. He said Kirschner drew several offers because "we're perceived as being at that stage."

"Kirschner had $40-plus million in debt two years ago and now it's 17," Mr. Howie said. "They've done a great job of getting themselves out of a very deep hole. . . . Kirschner's management has brought the company to the point where it is interesting again."

Maxxim spokesman Vic Beaudet said yesterday that he did not know if the company would raise its bid for Kirschner, but company officials told Bloomberg Business News the company was dumbfounded by Kirschner's announcement. Maxxim said it was keeping its offer outstanding until it gets a further response from Kirschner's management, investment bankers or shareholders.

But Mr. Shackleford said he believed Maxxim would be unwise to raise its bid, since the $37 million value of the Biomet package was already a stiff price to pay for a company with $2.3 million in earnings last year.

Mr. Walsh said Biomet could afford Kirschner more easily because the two firms' product lines were more similar than Maxxim's and Kirschner's. The greater overlap gives Biomet more potential to boost profits on Kirschner's products by cutting overhead in the sales force and in management, he said.

"While Maxxim may come back with a higher offer, Biomet is in the strongest position," he said.

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