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Zimmer-Biomet Merger Completes, 2015 Guidance Updated

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The long-awaited $14 billion mega merger between orthopedic major Zimmer Holdings Inc. and Biomet, Inc. has finally seen the light of day. Following the merger, the combined company will be called Zimmer Biomet, and it will start trading under the symbol “ZBH” on the New York Stock Exchange and the SIX Swiss Exchange, beginning today.

Following the completion of the merger, Zimmer Biomet provided a series of updates which include the combined strategy, revised financial guidance and the company’s new board of directors.

According to the combined major, this merger is a strategic fit and the integration planning teams are working together to ensure a seamless and efficient transition. Post-transition, Zimmer Biomet will become a leading innovator in the $45 billion musculoskeletal industry, backed by a more comprehensive and diversified portfolio with impressive market share and attractive cross-selling opportunities.

Zimmer Biomet plans to invest more in research and development, and medical training and education, with an aim to develop and introduce cutting-edge musculoskeletal products and services to achieve improved patient outcomes. The combined company also expects its expanded sales force to be effective across varied geographies with increased access to a broader portfolio.

Notably, the size of the company’s Board of Directors has been increased to include 12 members. In connection with the closing of the merger, James T. Crines, legacy Zimmer’s Executive Vice President, Finance and Chief Financial Officer, has stepped down from the position with effect from Jun 24, 2015. Daniel P. Florin, who had served as the Senior Vice President and Chief Financial Officer of Biomet, from June 2007, has been appointed as the Senior Vice President and Chief Financial Officer of the combined company, as successor to Crines.

Updated Guidance

Zimmer Biomet has provided its financial guidance for the second quarter of 2015. Excluding Biomet revenues, revenue growth is expected to remain in the range of 1.0% to 1.5% (or 1.5% to 2.0% on a billing day) at constant exchange rate or CER. Second quarter 2015 adjusted earnings per share is projected in the range of $1.55 to $1.58. The current Zacks Consensus Estimate for revenue and EPS are $1.14 billion and $1.56, respectively.

Full year 2015 revenue growth is now expected in the range of 1.5% to 2.0%, compared to the earlier estimated 1.5% to 2.5% at CER. The current Zacks Consensus Estimate for revenues is pegged at $4.81 billion. However, full-year adjusted EPS estimate has been reaffirmed at $6.60 to $6.80.  The current Zacks Consensus Estimate for EPS of $6.66 falls close to the lower end of the guided range.

More financial details for the rest of fiscal 2015 will be revealed during Zimmer Biomet’s second quarter earnings release, which is scheduled on Jul 30, 2015.

Earlier, the legacy Zimmer had declared enormous financial benefits from this takeover. According to the company, upon completion, the transaction is expected to be accretive to its adjusted EPS in double digits in the first year. Moreover, by the third year, net annual synergies should reach approximately $270 million with roughly $135 million expected in the first year itself.

The combined entity is also likely to generate operating cash flow of more than 1.5 times Zimmer's stand-alone estimates. Accordingly, with strong cash flow, Zimmer should be able to maintain a stable dividend of 15% to 20% of net income following the closure of the deal.

The stock currently carries a Zacks Rank #3 (Hold).

Stock to Consider

Some better-ranked medical products stocks are Bio-Rad Laboratories, Inc. (BIO - Free Report) , Hospira Inc. and INSYS Therapeutics, Inc. (INSY - Free Report) . All the three stocks sport a Zacks Rank #1 (Strong Buy).

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