ZIMMER HOLDINGS (A): ACQUISITION OF CENTERPULSE, SWITZERLAND Harvard Case Solution & Analysis

ZIMMER HOLDINGS (A): ACQUISITION OF CENTERPULSE, SWITZERLAND Case Solution

Introduction

Zimmer is a global leading orthopedic device manufacturing company. The company was founded in 1926, by its founder Justin Zimmer, based in Warsaw, Indiana. The company was a successful venture from its inception and has gain early success in the industry. With its great business potential, it was purchased by Bristo-Myers. After acquired by a pharmaceutical company, Zimmer gained high growth and became a key player in the industry. The company also makes its product prominence in the global market.

In 2001, the company was separated from Bristo-Myers and Squibb, and goes public accumulating market capitalization of $6 billion. The company is now trading on New York stock exchange NYSE with the ticker symbol of ZMH. The current CEO, chairman, and president is Ray Elliott while Sam Leno is the CFO and Executive vice president of the company.

Problem statement

In October 2002, Zimmer had identified an opportunity to buy out Center pulse, a smaller but feasible business undertaking operating in the same industry. This opportunity was going to provide expansion to Zimmer and will also make it dominating market player and highly competitive. But the offer was refused instantly. Center pulse was facing product liability suits, spun off by parent company Sulzer Corporation.

But surprisingly, Centerpulse secretly dealt with Smith & Nephew Company, which will acquire Center pulse, as per the press release and Asian Wall Street Journal? For the CEO and CFO it is a time to think whether to counter this deal or not. The Swiss laws allow counter bid within 40 days of the announcement of the merger deal.

Surgical orthopedic industry

In the United States surgical treatment and orthopedic procedures are growing more rapidly. The market is expected to grow beyond $190 million worldwide. An orthopedic surgery can cost up to $20,000. This cost is majorly for the device or product used in the implanting procedure. Companies like Zimmer are the manufacturer of these devices. The industry is highly profitable and is expected to grow more at a high pace. Thus, companies focused to capture more market share, gain competitive advantage and gain higher profitability. The key factors of this industry are discussed below.

Key success factor

Research and development

One of the key success factors for this industry is to invest heavily in the research and development area to make, innovate and manufacture new medical devices and products as well as to improve the existing products. It is industry norm to invest up to 4% or 6% of revenues on research and development. Companies invest heavily to improve the implant devices and technologies in order to gain an advantage over other products in the market. These improvements also provide a cost-saving strategic accomplishment for the company.

Mergers and acquisitions

Another key factor in this industry is to strengthen the product lines and get expanded to gain greater market share. This is done by mergers and acquisitions of small but successful companies in the industry. Companies, in order to get ahead of their competitors, want to acquire latest innovative technology, increase their geographical reach and have a greater domestic and international market share.......................

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