UPDATE: Jan. 23, 2020: Stryker on Tuesday acknowledged a class action lawsuit spearheaded by a Wright shareholder alleging Wright failed to disclose certain material information in its Form 14D-9, or solicitation statement.

A complaint from Wright shareholder John Thompson, filed Jan. 15 in the U.S. District Court for the District of Delaware, alleges Wright did not disclose certain material information, which it said makes the statement false and misleading.

Specifically, the complaint says the solicitation statement omits material information related to Wright's financial projections. It's also missing information from analyses performed by Guggenheim Securities, the financial advisor to the proposed transaction, including stock price targets, inputs and assumptions underlying discount and perpetual growth rate ranges, terminal or continuing value, and net operating loss carryforwards.

"When a banker’s endorsement of the fairness of a transaction is touted to shareholders, the valuation methods used to arrive at that opinion as well as the key inputs and range of ultimate values generated by those analyses must also be fairly disclosed," the complaint says.

Stryker is also implicated because it had "direct supervisory control" over the solicitation statement, according to the plaintiff. In a document filed with the Securities and Exchange Commission on Tuesday, Stryker called the allegations "without merit" and the companies do not necessarily plan to announce if similar complaints are filed.

Dive Brief:

• 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."

Dive Insight:

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.