Dive Brief:
- The U.K. Competition and Markets Authority on Tuesday raised concerns that Stryker's proposed $4 billion acquisition of Wright Medical Group could result in the medtech giant controlling 90% of Britain's total ankle replacement prostheses market, leading to higher prices and less choice for hospitals and patients.
- CMA warned that the anti-competitive nature of the Stryker-Wright deal could have a negative impact in particular on elderly individuals in the U.K. who suffer from arthritis and need ankle replacements, according to the agency's initial Phase 1 investigation.
- Stryker and Wright, which both manufacture a range of orthopaedic products, have until July 7 to address the issues raised by CMA. However, if the medtechs are unable to allay the concerns of regulators, the agency said the proposed merger will be referred for a more in-depth Phase 2 investigation.
Dive Insight:
Stryker in November 2019 announced its plan to buy Wright for $30.75 per share, at the time representing a total equity value of approximately $4 billion, or $5.4 billion including debt. The deal was touted by the medtech giant as an effort to snag Wright’s lower extremities product offerings, a bid to complement to Stryker’s portfolio and strengthen its overall position in the high-growth market segment.
However, from the start, Stryker's proposal to integrate Wright into its orthopaedics business caused some analysts to speculate that the combined suppliers of foot and ankle devices would draw antitrust concerns from regulators. When the proposed deal was announced, Jefferies analysts estimated that Stryker and Wright together have up to 45% of the lower extremity market.
CMA announced in April 2020 that it was investigating Stryker's planned acquisition of Wright and in May officially launched the agency's initial inquiry to determine if the merging of the two companies would "result in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services."
Competition in the medtech industry is critical to innovation and improvements in patient care, said Joel Bamford, CMA's senior director, in a statement on Tuesday. Bamford noted that the agency is not only concerned that the Stryker-Wright deal could reduce the competitive nature of the U.K.'s total ankle replacement prostheses market but also that it could in turn "lead to worse outcomes for hospitals and patients."
In a filing on Wednesday with the U.S. Securities and Exchange Commission, Stryker said the two companies "will continue to work cooperatively with the CMA" to try and resolve the issues raised by the agency.
When Stryker announced in November its plan to acquire Wright, the company expected the deal to close in the second half of 2020, with the standard caveat that the "closing of the transaction is subject to receipt of applicable regulatory approvals" and the completion of the tender offer, among other contingencies.
The Federal Trade Commission in January extended its review of the companies' proposed merger. A so-called second request, received Dec. 31, at the time indicated the FTC was asking for additional information from both medtechs to determine the competition effects of the deal. Armed with that information, U.S. regulators have the power to seek an injunction to stop the acquisition or challenge it in administrative litigation.
Stryker on Monday announced it extended the offering period of its previous cash tender offer for all outstanding ordinary shares of Wright Medical. The tender offer is now set to expire on August 31, unless a decision is made to extend it further or terminate it earlier, according to the company.
