Business

Bribery Investigation Overshadows Biomet Merger

Warsaw, Indiana, the “orthopedic capital of the world” continues to await the $13.3 billion merger of its two mainstays employers.

Brokered by Goldman Sachs and either private equity giants, a deal was announced in April for Zimmer Holdings to purchase rival Biomet. Since then, however, accusations of overseas bribery have taken the shine off the announcement.

Today, the New York Times dove into the matter and took a look at whether or not that deal would go through or at least at what price. The Times piece was based on confidential documents delivered to the newspaper as well as interviews with lawyers on both sides.

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Biomet’s investigation

Biomet is presently under investigation by both the Securities and Exchange Commission as well as the Department of Justice for a longstanding practice of bribery in both Mexico and Brazil. In Brazil, according to a whistle-blower, distributors of Biomet orthopedics were regularly “paying kickbacks” to government doctors.

Biomet has apparently been working in order to settle the allegations, but those conversations are private and no one one either side has been willing to discuss a possible settlement ahead of the merger that is meant to close in the first quarter of next year. The merger is likely to go ahead as planned as Biomet has presumably been up-front with its suitor and new parent and the Federal guidelines preclude the government from committing “disproportionate harm” upon shareholders.

Deferred prosecution likely(?)

Additionally, and what happens quite often, it’s quite possible that the government will look to a deferred prosecution or simply criminally charging the foreign subsidiaries of Biomet in the countries that the wrong-doing occurred. That will certainly rile some feathers of critics as Biomet agreed to deferred prosecution in a similar case in 2011.

While it’s likely that Biomet will largely escape criminal prosecution in the States the government has been cracking down on international bribery as late including its settlement with French power company Alstom which the Justice Department took $772 million from just last week.

“There are good reasons for prosecutors to give new owners a chance to clean up a company,” said Brandon L. Garrett recently told the New York Times. Garrett is  a University of Virginia law school professor and author of the book “Too Big to Jail: How Prosecutors Compromise With Corporations.” “But if prosecutors want companies to take foreign bribery laws seriously, then they can’t keep letting companies violate the law over and over again.”

While he has a point, it seems likely that the Biomet will once again see a simple slap on the wrist, one that will likely be paid by Zimmer or simply taken out of the sale price.