The US Federal Trade Commission has racked up some pretty impressive antitrust victories this year, derailing billion-dollar mergers in the entertainment, food and electronics industries. But it has come unstuck in medtech, with its bid to halt the merger of the sterilisation groups Steris and Synergy Health being struck down in court yesterday.
The move will surely embolden device companies wishing to build scale, suggesting that there is nothing to stop them buying their fellows no matter how great a share of a market the combined company will occupy. Yet more medtech consolidation could be on the way.
A federal judge in the US District Court for Northern Ohio refused to grant the FTC’s request for a preliminary injunction barring Steris's proposed $1.9bn purchase of Synergy Health.
The Commission was seeking to block the combination on the grounds that Synergy had been intending to launch an X-ray sterilisation programme in the US, but had mothballed it after signing the deal with Steris. The X-ray offering would have competed with Steris’s gamma radiation-based sterilisation technology, and the FTC contended that its abandonment was anticompetitive.
The Ohio court felt that the Commission had not demonstrated this to be true, with the judge writing that the timing of the X-ray project cancellation “may actually be the best evidence that it was done for legitimate business reasons, as opposed to anticompetitive ones”.
The unexpected nature of this decision is illustrated by a look at Synergy’s stock price over the past four months: the precipitous drop at the end of May when the FTC’s investigation was announced shows that at that point the market believed the deal dead. This morning’s 43% jump to £22.55 puts Synergy’s shares back in the post-announcement price range. Steris’s stock was up 7% on the NYSE yesterday.
According to Jefferies analysts, the reason investors were so surprised is not that the FTC was right but because Synergy management performed poorly at a previous hearing, failing to get across the message that its business decisions were legit. This had led many investors to assume there was little chance that the merger would proceed.
The FTC now looks rather ineffectual – when it comes to device makers, anyway. Its failure to stop Steris and its lack of interest in disturbing other scale-play medtech megamergers, such as the one that created Zimmer Biomet, might prompt players pondering consolidation to wonder whether anything stands in their way. Zimmer Biomet, which currently has a 13% share of the orthopaedics market, could perhaps go on to merge with Stryker, which has 16%.
It is known that Abbott Laboratories will not be buying St. Jude Medical. But maybe someone else will. Maybe Medtronic, having attained a 22% share of the cardiology market with its absorption of Covidien, will now buy St. Jude or Boston Scientific, each of which has a 12% share. Perhaps it will buy both. On the antitrust front, there doesn’t seem to be anything stopping it.