FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of
1934
March 20, 2003
Commission File Number 001-14978
SMITH & NEPHEW plc
(Registrant's name)
15 Adam Street
London, England WC2N 6LA
(Address of registrant's principal executive offices)
[Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F.]
Form 20-F X Form 40-F
------- -----
[Indicate by check mark if the registrant is submitting the Form 6-K in paper
as permitted by Regulation S-T Rule 101(b)(1).]
Yes No X
----- ------
[Indicate by check mark if the registrant is submitting the Form 6-K in paper
as permitted by Regulation S-T Rule 101(b)(7).]
Yes No X
----- ------
[Indicate by check mark whether by furnishing the information contained
in this Form, the registrant is also thereby furnishing information to the
Commission pursuant to Rule 12g3-2 (b) under the Securities Exchange Act of
1934.]
Yes No X
----- ------
If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2 (b) : 82- n/a.
Total Pages: 30
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Smith & Nephew plc
(Registrant)
Date: March 20, 2003 By: /s/ Paul Chambers
-------------------
Paul Chambers
Company Secretary
[LOGO OMITTED] center pulse [LOGO OMITTED] Smith+Nephew
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN, INTO OR FROM CANADA,
AUSTRALIA OR JAPAN
20 MARCH 2003 FOR IMMEDIATE RELEASE
PART ONE OF TWO
SMITH & NEPHEW AND CENTERPULSE COMBINE TO FORM GLOBAL
ORTHOPAEDICS LEADER
GBP 1.5 BILLION RECOMMENDED OFFER BY SMITH & NEPHEW FOR CENTERPULSE
London/Zurich, 20 March 2003 - The Boards of Smith & Nephew plc and
Centerpulse AG announce that they have agreed to combine their businesses to
create a leading global orthopaedics company.
The Transaction will be effected by Smith & Nephew Group plc (which will be
the new holding company of Smith & Nephew) making a recommended offer for
Centerpulse and, in parallel, a recommended offer for InCentive Capital AG, a
listed investment company which holds, or has the right to hold, 19% of the
issued share capital of Centerpulse.
Smith & Nephew Group will offer 25.15 New Smith & Nephew Group Shares and CHF
73.42 in cash in respect of each Centerpulse Share, valuing each Centerpulse
Share at CHF 282. The offers for Centerpulse and InCentive will together
result in the issue of 298 million New Smith & Nephew Group Shares and the
payment of a net GBP 400 million (CHF 870 million) in cash, after taking
account of InCentive's expected cash balances. On this basis, the Combined
Group will have a pro forma market capitalisation of GBP 4.7 billion.
Shareholders of both companies will benefit from the expected cost and revenue
synergies arising from greater scale, and the opportunity to enhance the
Combined Group's performance over the medium and long term. The Transaction
transforms the scale of the Combined Group's orthopaedics business and in
particular will:
o Give the Combined Group the No 3 global position (up from No 7 and No 8
for Smith & Nephew and Centerpulse respectively) in the $14 billion
orthopaedics market, one of the fastest growing medical technology
sectors, which grew at an estimated 15% in 2002. The Combined Group will
derive approximately 74% of sales from the orthopaedics sector (joint
implants, trauma, arthroscopy, spine and dental implants)
o Strongly position the Combined Group in reconstructive implants as the
market leader in Europe with approximately a 26% market share. With 18%
of the global reconstructive implant market, the Combined Group will have
the No 3 position worldwide in hips and No 4 in knees
2
o Enhance earnings per share of the Combined Group by mid single digits in
2004 (before amortisation of goodwill and exceptional integration costs)
and approaching double digits in 2005 when the post-tax return on
investment is expected to meet Smith & Nephew's weighted average cost of
capital
o Generate significant long-term value through the combined product base,
customer network and scale-related benefits. More immediately,
integration cost savings are expected to amount to GBP 45 million per
annum by 2005, requiring exceptional cash costs of GBP 130 million to
implement
o Position the Combined Group to target a pre-goodwill operating margin of
23% by 2005/6, up from Smith & Nephew's previous guidance of 21%. The
Combined Group's Orthopaedics Division is targeting pre-goodwill
operating margin improvement to 27% by that time
o Bring together the complementary product ranges and develop more rapidly
the technological capabilities of the two businesses. The Combined Group
will possess one of the most innovative product line-ups in the global
orthopaedics sector
o Build on the geographical strengths of each business: Centerpulse's
leading market presence in Europe complements Smith & Nephew's position
as the fastest growing orthopaedic implant company, having particularly
strong growth in the US
o Provide an enhanced platform for growth in the spine market, the fastest
growing segment of the orthopaedics sector, as well as bring a strong
dental implant business
o Bring longer term scale benefits in terms of research and development and
access to key orthopaedic surgeon opinion leaders
Summary of the Transaction
o Smith & Nephew Shareholders will exchange their Smith & Nephew Shares for
shares in a new holding company, Smith & Nephew Group, on a one-for-one
basis by means of a Court Scheme. Smith & Nephew Group will be the
holding company of the Combined Group
o The share and cash offers for Centerpulse and InCentive will be made by
Smith & Nephew Group. It will offer 25.15 New Smith & Nephew Group
Shares and CHF 73.42 in respect of each Centerpulse Share so that
Centerpulse and InCentive shareholders will collectively own 24% of the
Combined Group. Centerpulse and InCentive shareholders (the latter in
respect of InCentive's holding in Centerpulse) will also be offered a
Collective Mix and Match Facility whereby they may elect to receive more
or less cash to the extent that other Centerpulse or InCentive
shareholders have elected to receive more or fewer New Smith & Nephew
Group Shares
3
o On the basis of Smith & Nephew's closing price of 381.25p on 19 March
2003, the Centerpulse Offer values each Centerpulse Share at CHF 282 and
the total issued share capital of Centerpulse at CHF 3.3 billion
(GBP 1.5 billion). The Centerpulse and InCentive Offers will together
result in the issue of 298 million New Smith & Nephew Group Shares and a
net payment of CHF 870 million (GBP 400 million) in cash, after taking
account of InCentive's expected cash balances
o The Centerpulse Offer, together with assumed debt, represents a multiple
of 12.6 times Centerpulse's continuing EBITDA before exceptional items
for the year ended 31 December 2002, the results of which are being
released today. In these results Centerpulse reports sales of CHF 1,241
million and operating profit before goodwill amortisation and exceptional
items of CHF 228 million for continuing operations
o Smith & Nephew Group will assume Centerpulse's outstanding net debt which
stood at CHF 358 million (GBP 165 million) as at 31 December 2002.
Smith & Nephew Group has entered into a new underwritten bank debt
facility of $2.1 billion, inter alia to refinance the existing net debt
of both Smith & Nephew and Centerpulse, to finance the cash element of
the Offers and to provide working capital headroom
o Shareholders representing 77% of InCentive's issued share capital have
undertaken irrevocably to accept the InCentive Offer. Furthermore, Smith
& Nephew has been granted a right of first refusal over their shares in
the event of a third party making a higher offer for Centerpulse and the
third party offer becoming unconditional as to acceptances. InCentive's
portfolio is currently being rationalised so as eventually to comprise
only Centerpulse shares and cash, and the terms of the InCentive Offer
will be such that in respect of its holding in Centerpulse they will
precisely reflect the terms of the Centerpulse Offer
o The primary listing of the Combined Group will be in London. Smith &
Nephew Group will seek a secondary listing of its shares on the SWX Swiss
Exchange as of the Settlement Date or as soon thereafter as is
practicable. Smith & Nephew Group intends to replicate Smith & Nephew's
current ADS listing in the United States
o The Centerpulse Offer has been unanimously recommended by the Board of
Centerpulse. The Centerpulse Offer is conditional, inter alia on the
approval of Smith & Nephew's shareholders, on regulatory clearances and
on the Court Scheme having become effective
o The InCentive Offer has been unanimously recommended by the Board of
InCentive and is conditional, inter alia, on the Centerpulse Offer having
been declared wholly unconditional and on the Court Scheme having become
effective
o The Transaction is expected to be completed towards the middle of 2003
o Smith & Nephew is being advised by Lazard. Centerpulse is being advised
by Lehman Brothers and UBS Warburg. InCentive is being advised by Lombard
Odier Darier Hentsch & Cie
4
Commenting on today's announcement, Chris O'Donnell, Chief Executive of Smith
& Nephew, said:
"This transaction is an important strategic step for both companies. It brings
together two highly complementary businesses, transforming the scale of both
of our orthopaedics businesses, as well as providing an enhanced position in
the rapidly growing spine segment. The common technology focus and excellent
product and geographic fit between the two businesses will be a strong
platform for value creation.
"Given the cultural similarities of our two organisations, we are confident we
can achieve a smooth and rapid integration of the two businesses. We expect
the resulting combination to deliver significant synergies and returns for
shareholders, and the quality and breadth of the combined product range will
enable us to serve better the needs of patients, surgeons and hospitals."
Dr. Max Link, Chairman and Chief Executive of Centerpulse, added:
"We are delighted to be creating, with Smith & Nephew, one of the world's
leading orthopaedics companies which will have increased strength and the
resources to prosper as a global player in its sector. We believe that a
combination with Smith & Nephew represents an attractive opportunity for
shareholders and strongly recommend Centerpulse shareholders to accept the
offer."
This summary should be read in conjunction with the full text of the following
announcement. Appendix I contains the conditions to the Centerpulse Offer.
Appendix II contains the conditions to the InCentive Offer. Appendix III
contains the definitions of terms used in this announcement.
Exchange rates of CHF 2.1756: GBP 1 and CHF 1.3915 : US$1 have been used
throughout this announcement.
There will be a meeting for analysts at 9.30 am GMT in London today at
City Presentation Centre, 4 Chiswell Street, Finsbury Square, London,
UK, followed by a teleconference for US analysts and shareholders at
3.30 pm GMT/10.30 am EST. A press conference will be held at City
Presentation Centre this morning at 11.30 am GMT. Please call Mo Noonan
at Financial Dynamics on +44 (0) 20 7831 3113 for details.
The analyst meeting will be webcast as will the tele-conference today at
3.30 pm GMT on www.smith-nephew.com/investors and on
www.centerpulse.com/centerpulse/investors/ High resolution photographs
are available to the media free of charge at www.newscast.co.uk
On Friday 21 March 2003, there will also be a meeting for Swiss analysts
and shareholders at 10.00 am GMT/11.00 am CET at Swissotel,
Zurich-Oerlikon, Switzerland. Please contact Suha Demokan at Centerpulse
on +41 (0) 1 306 9825 for details.
5
ENQUIRIES:
Smith & Nephew Tel: +44 (0) 20 7401 7646
Chris O'Donnell, Chief Executive
Peter Hooley, Finance Director
Angie Craig, Corporate Affairs Director
Centerpulse
Max Link, Chairman and Chief Executive
Urs Kamber, Chief Financial Officer
Beatrice Tschanz, Corporate Communications Tel: +41 (0) 1 306 9646
Suha Demokan, Investor Relations Tel: +41 (0) 1 306 9825
InCentive Tel: +41 (0) 1 205 9300
Rene Braginsky, CEO & Delegate of the Board
Raoul Bloch
Lazard Tel: +44 (0) 20 7588 2721
(Financial Advisers to Smith & Nephew)
Nicholas Shott
Cazenove Tel: +44 (0) 20 7588 2828
(Brokers to Smith & Nephew)
Duncan Hunter
Tony Brampton
Dresdner Kleinwort Wasserstein Tel: +44 (0) 20 7623 8000
(Brokers to Smith & Nephew)
Jim Hamilton
Angus Kerr
Lehman Brothers
(Financial Advisers to Centerpulse)
Kenneth Siegel Tel: +1 212 526 7000
Henry Phillips Tel: +44 (0) 20 7601 0011
Joseph Kohls Tel: +1 212 526 7000
UBS Warburg
(Financial Advisers to Centerpulse)
Karl Schmidt Tel: +44 (0) 20 7568 5959
Liam Beere Tel: +44 (0) 20 7568 2286
Lombard Odier Darier Hentsch & Cie
(Financial Advisers to InCentive)
Romeo Cerutti Tel: +41 (0) 1 214 1330
Marc Klingelfuss Tel: +41 (0) 1 214 1332
Financial Dynamics
(PR for Smith & Nephew)
London: David Yates / Jonathan Birt Tel: +44 (0) 20 7831 3113
New York: Anton Nicholas/Deborah Ardern-Jones Tel: +1 212 850 5626
6
Lazard is acting for Smith & Nephew in connection with the Transaction and
no-one else and will not be responsible to anyone other than Smith & Nephew
for providing the protections offered to clients of Lazard nor for providing
advice in relation to the Transaction.
Lehman Brothers is acting for Centerpulse in connection with the Transaction
and no-one else and will not be responsible to anyone other than Centerpulse
for providing the protections offered to clients of Lehman Brothers nor for
providing advice in relation to the Transaction.
UBS Warburg is acting for Centerpulse in connection with the Transaction and
no-one else and will not be responsible to anyone other than Centerpulse for
providing the protections offered to clients of UBS Warburg nor for providing
advice in relation to the Transaction.
Lombard Odier Darier Hentsch & Cie is acting as financial adviser for
InCentive in connection with the Transaction and no-one else and will not be
responsible to anyone other than InCentive for providing the protections
offered to clients of Lombard Odier Darier Hentsch & Cie nor for providing
advice in relation to the Transaction. In addition, Smith & Nephew has
entrusted Lombard Odier Darier Hentsch & Cie with the technical execution of
the InCentive Offer.
No offer or invitation to acquire or exchange securities in Centerpulse or
InCentive is being made now. Any such offer or invitation will only be made in
documents to be published in due course and any such acquisition or exchange
should be made solely on the basis of information contained in such documents.
The Centerpulse Offer will not be made, directly or indirectly, in or into, or
by use of the mails or by any means or instrumentality (including, without
limitation, telephonically or electronically) of interstate or foreign
commerce of, or of any facility of a national securities exchange of, Canada,
Australia or Japan. Accordingly, copies of this document and any related
documents are not being, and must not be, directly or indirectly, mailed or
otherwise forwarded, distributed or sent in or into or from, Canada, Australia
or Japan and persons receiving this document and any related documents
(including custodians, nominees and trustees) must not mail or otherwise
forward, distribute or send it in or into or from, Canada, Australia or Japan.
Relevant clearances have not been, nor will they be, obtained from the
securities commission of any province or territory of Canada; no prospectus
has been lodged with, or registered by, the Australian Securities and
Investments Commission or the Japanese Ministry of Finance; and the New Smith
& Nephew Group Shares have not been, nor will they be, registered under or
offered in compliance with applicable securities laws of any state, province,
territory or jurisdiction of Canada, Australia or Japan. Accordingly, the New
Smith & Nephew Group Shares may not (unless an exemption under relevant
securities laws is applicable) be offered, sold, resold or delivered, directly
or indirectly in or into Canada, Australia or Japan or any other jurisdiction
as to do so may constitute a violation of the relevant laws of, or require
registration thereof in such jurisdiction or to, or for the account or benefit
of, a person in or resident in Canada, Australia or Japan.
The InCentive Offer is not being made in any country where such offer would be
considered illegal or would otherwise violate any applicable law or regulation
or where Smith & Nephew may be obliged to change the terms of the InCentive
Offer, to file an additional application with any authorities or other
institutions or to undertake additional measures in relation to the InCentive
Offer. It is not foreseen to extend the InCentive Offer to such jurisdictions.
Documents in relation to this transaction must not be distributed in such
jurisdictions or sent to such jurisdictions. Persons in such jurisdictions
must not use these documents for marketing purposes for sales of shares of
InCentive.
7
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of
the United States Private Securities Litigation Reform Act of 1998. Statements
that are not strictly historical statements, including statements about Smith
& Nephew's and Centerpulse's beliefs and expectations, constitute
forward-looking statements. By their nature, forward-looking statements are
subject to risk and uncertainty because they relate to events and depend on
circumstances that will occur in the future. The forward-looking statements in
this release include, but are not limited to, statements addressing the
following subjects: expected timing of the Transaction; future financial and
operating results; actions to be taken by the Combined Group following the
Transaction; and the timing and benefits, including synergy benefits, of the
Transaction. The following factors, among others, could cause results to
differ materially from those described in the forward-looking statements:
inability to obtain, or meet the conditions imposed for, regulatory approvals
for the Transaction; the failure of the shareholders of Smith & Nephew to pass
the resolutions necessary to implement the Transaction; the failure of the
court to sanction the Court Scheme; the failure of the minimum tender
condition or the failure of other conditions to the Offer; the risk that the
businesses will not be integrated successfully and that the expected synergies
and cost savings will not be achieved; and other economic, business,
competitive and/or regulatory factors affecting the businesses of Smith &
Nephew and Centerpulse generally. More detailed information about such
economic, business, competitive and/or regulatory factors is set forth in
Centerpulse's filings with the SEC. Smith & Nephew and Centerpulse are under
no obligation, and expressly disclaim any obligation, to update or alter their
forward-looking statements, whether as a result of new information, future
events or otherwise.
Additional Information
Any offer in the United States will only be made through a prospectus, which
is part of a registration statement to be filed with the SEC. Centerpulse
shareholders who are US persons or are located in the United States are urged
to carefully review the registration statement and the prospectus included
therein, the Schedule TO and other documents relating to the offer that will
be filed by Smith & Nephew with the SEC because these documents contain
important information relating to the Centerpulse Offer. You are also urged to
read the related solicitation/recommendation statement on Schedule 14D-9 that
will be filed with the SEC by Centerpulse relating to the Centerpulse Offer.
You may obtain a free copy of these documents after they have been filed with
the SEC, and other documents filed by Smith & Nephew and Centerpulse with the
SEC, at the SEC's Web site at www.sec.gov. Once the registration statement, as
well as any documents incorporated by reference therein, the Schedule TO and
the Schedule 14D-9 have been filed with the SEC, you will also be able to
inspect and copy these documents at the public reference room maintained by
the SEC at 450 Fifth Street, NW, Washington, D.C. 20549. Please call the SEC
at 1-800-SEC-0330 for further information about the public reference room. YOU
SHOULD READ THE PROSPECTUS AND THE SCHEDULE 14D-9 CAREFULLY BEFORE MAKING A
DECISION CONCERNING THE CENTERPULSE OFFER.
8
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN, INTO OR FROM CANADA,
AUSTRALIA OR JAPAN
20 MARCH 2003 FOR IMMEDIATE RELEASE
PART TWO OF TWO
SMITH & NEPHEW AND CENTERPULSE COMBINE TO FORM GLOBAL ORTHOPAEDICS LEADER
Introduction
The Boards of Smith & Nephew and Centerpulse announce that they have agreed to
combine their businesses to create a leading global orthopaedics company.
The proposed Transaction brings significant strategic benefits, transforming
the scale of the Combined Group's reconstructive implant business, expanding
its geographic reach and broadening its product offering. Additionally, it
offers an enhanced platform for growth in spinal implants, the fastest growing
segment within the orthopaedics sector. The Transaction is expected to result
in significant value creation opportunities for shareholders and to serve
better the current and future needs of patients, surgeons and the hospital
communities.
Information on Smith & Nephew
Smith & Nephew is a global advanced medical devices company employing over
7,300 people with operations in 32 countries. Underlying sales growth in 2002
was 14%, with acquisitions adding a further 4%. Operating margins of
continuing operations (before amortisation of goodwill and exceptional items)
were 18%. It is structured in three divisions, Orthopaedics, Endoscopy and
Advanced Wound Management, with principal manufacturing in Tennessee and
Massachusetts in the US, and Hull in the UK.
Orthopaedics is a global provider of reconstructive implant systems for knees,
hips and shoulder joints, as well as trauma and clinical therapy products to
help repair broken bones and damaged joints. This business strives to combine
industry-leading technology with clinically proven products to deliver
simpler, less invasive and more cost effective procedures to the orthopaedic
community. Smith & Nephew has 8% of the orthopaedic reconstructive implant and
trauma markets and holds the No 6 worldwide position. In 2002, sales were
GBP 470 million, an underlying sales increase of 20%, and EBITA before
exceptional items was GBP 98 million.
Endoscopy is a world leader in the development and commercialisation of
minimally invasive endoscopic surgery. This business is committed to reducing
trauma and pain to the patient, reducing cost to healthcare systems, and
providing better outcomes for surgeons and patients with its broad range of
techniques and instruments for minimally invasive surgery, particularly of the
joint. Smith & Nephew has 35% of the arthroscopy (joint) market and holds the
leading worldwide position. In 2002, sales were GBP 292 million, an
underlying sales increase of 10%, and EBITA before exceptional items was
GBP 54 million.
9
Wound Management provides an advanced range of treatments for difficult to
heal wounds. It develops innovative new solutions to chronic and acute wound
management problems. Smith & Nephew has 21% of the advanced wound management
market and has the leading worldwide position. In 2002, sales were GBP 322
million, an underlying increase of 11%, and EBITA before exceptional items was
GBP 44 million.
Smith & Nephew also has investments in BSN Medical, a joint venture with
Beiersdorf AG, and in AbilityOne Corporation, a rehabilitation business in
which it holds a 21.5% interest. The share of operating profit before
exceptional items attributable to Smith & Nephew in 2002 from these two
investments was GBP 25 million.
Summary financial information as extracted from Smith & Nephew's audited 2002
results:
Year to Year to
31 December 31 December
2002 2001
Group turnover (continuing operations) GBP 1,084m GBP 978m
EBITA before exceptional items GBP 221m GBP 187m
(continuing operations including
investments)
Basic earnings per share before 16.02p 13.96p
goodwill amortisation and exceptional
items
Shareholders' funds GBP 517m GBP 405m
Net debt GBP 277m GBP 244m
Information on Centerpulse
Centerpulse, formerly Sulzer Medica AG, is a leading medical technology group
employing over 2,800 employees globally, which serves the reconstructive
joint, spinal and dental implant markets. Following the divestiture of its
Cardiovascular Division, which was concluded in January 2003, the group is
organised into three divisions: Orthopaedics, Spine-Tech and Dental.
Centerpulse, which is headquartered in Switzerland and has a history of
technological leadership in its principal areas of activity, has five
production facilities in Switzerland, the US and France.
The company's largest division is Orthopaedics, which focuses on joint care
and includes the traditionally strong hip and knee implant businesses.
Centerpulse estimates that it has a leading share of the European implant
market, with a 22% market share. In 2002, the Orthopaedics Division reported
total sales of CHF 923 million, of which CHF 542 million was in Europe. The
underlying sales growth for 2002 was 14%.
Spine-Tech offers a full range of spinal implant systems primarily in the US,
and has a global market share of 7%. In 2002, the Spine-Tech Division had
sales of CHF 179 million, an underlying growth of 10%.
10
The Dental Division, producing mainly dental implants, serves primarily the US
and European markets and occupies the No 4 position globally, with a market
share of approximately 12%. In 2002, the Dental Division had sales of CHF 131
million, an underlying increase of 18%.
Summary financial information as extracted from Centerpulse's audited
consolidated 2002 results, which are being released today:
Year to Year to
31 December 31 December
2002 2001
Group turnover (continuing operations) CHF 1,241m CHF 1,158m
EBITA before exceptional items CHF 228m CHF 107m
(continuing operations)
Profit/(loss) before tax CHF 376m CHF (1,645)m
Basic earnings per share CHF 33.10 CHF (119.62)
Net assets CHF 1,278m CHF 791m
Net debt (cash) CHF 358m CHF (61)m
Information on InCentive
InCentive, an investment company listed on the SWX Swiss Exchange, holds, or
has the right to hold (after the exercise of its call options and lapse of
related put options), 19% of the issued share capital of Centerpulse. In its
full year 2002 results, which are being released today, InCentive reports
profit before tax of CHF 178 million. As of 14 March 2003, InCentive's net
asset value amounted to CHF 739 million. InCentive's portfolio is currently
being rationalised so as eventually to comprise only Centerpulse shares and
cash.
Strategic Rationale
The combination of the two companies creates a global leader in the $14
billion orthopaedics market, with the Combined Group rising to a No 3 market
share position. In bringing together two complementary businesses and
transforming their scale, the Transaction offers significant strategic and
value creation opportunities.
Market Dynamics
The orthopaedic implant market continues to be one of the fastest growing
medical technology sectors, with estimated global growth of 15% in 2002. In
most developed countries there are some common drivers:
o Demographics of an ageing population, with the population aged 50-69
projected to increase by nearly 3% per annum for the foreseeable future
o Improved quality of life expectations, with patients also being better
informed of the benefits of orthopaedic surgery due to the Internet,
media, and word of mouth
11
o An expanding patient pool, due to an increase in active lifestyles and
new longer-lasting materials such as improved bearing surfaces in
orthopaedics and bioresorbables in arthroscopy that are encouraging
surgeons to treat younger and more active patients
o An increasing incidence of osteoarthritis, combined with less invasive
surgery trends and continued growth in surgeon familiarity with implant
surgery
o An increasing need for revision surgeries, as patients from the first
orthopaedic boom in the late 80s require revision procedures
Global Scale and Increased Geographic Reach in Reconstructive Implants
Building on Centerpulse's market leading position in Europe and Smith &
Nephew's significant presence in the US, the Combined Group will become the
fourth largest global reconstructive implant company with a market share of
approximately 18%. In Europe, the Combined Group will be a market leader in
reconstructive implants with a market share of approximately 26%. It will
become No 4 overall in reconstructive implants in the US with a market share
of 14% and have an enhanced position in Japan.
Centerpulse's particular geographic strength is in Europe, based on strong
surgeon relationships developed over many years, along with an outstanding
reputation for service. Centerpulse also has significant manufacturing and
research and development facilities, located in Winterthur, Switzerland. This
provides a major European facility, which will continue as a key centre for
the long-term benefit of the Combined Group.
In addition, the two businesses fit together well in the US. Centerpulse,
which has a smaller share of the US market, is particularly well-established
in the Southern states, complementing the strong presence of Smith & Nephew
across other regions of the US.
The combination will also double the scale of the Combined Group's business in
the important Japanese market, where Smith & Nephew has a strong position in
trauma and Centerpulse is well positioned in reconstructive implants.
Complementary Product Lines
The fit between the two companies' product lines is excellent. Centerpulse is
strong in hips, with pioneering positions in metal-on-metal and highly
cross-linked polyethylene, as well as extensive developments under way in less
invasive procedures and in larger heads giving greater range of motion. Whilst
Smith & Nephew is also strong in hips, it has particular strength in knees,
with the revolutionary Oxinium product setting new standards for innovation
and longevity. Leveraging the specific strengths of each company's sales
relationships into new accounts with this expanded product range is
anticipated to lead to significant cross-selling opportunities.
Both companies have a strong tradition of technological innovation and, when
combined, they will possess one of the most innovative product line-ups in
global orthopaedics, including:
o The broadest range of wear reducing joint implant bearing surfaces
(Oxinium, Durasul, Metasul)
12
o Unique minimally invasive knee surgery products (Unispacer, Accuris)
o Proven total joint brands (Genesis II, Natural Knee, CLS,
Alloclassic, Spectron, Reflection, Synergy)
o Computer Assisted Surgery technology (Navitrack, Achieve)
o Advanced trauma devices (TriGen, Taylor Spatial Frame, OrthoGuard
AB, Exogen)
Expansion in the Fast-Growing Spinal Segment
Centerpulse's global No 5 position in spinal implants provides the Combined
Group with an enhanced platform for growth in the fastest growing segment of
the orthopaedics market. In 2001, the US and European spine market was
estimated to be worth $1.7 billion. Centerpulse entered the spinal marketplace
in 1998 through the acquisition of Spine-Tech Inc., which brought with it the
market leading lumbar fusion cage. Spine-Tech now offers a full range of
products in the spinal implant market with devices for lumbar and cervical
fixation, allografts and stabilisation devices. The spine business is well
placed for growth in a rapidly expanding market.
Dental
Centerpulse's Dental Division occupies the No 4 position globally in the
dental implant market with a market share of approximately 12%. It primarily
serves the US market and had sales of CHF 131 million in 2002, an underlying
increase of 18%. The global market for dental implants is currently growing at
15% per annum and the Dental Division is well positioned for further growth.
Value Creation Opportunities
Significant value is expected to be created for the Combined Group's
shareholders in three key areas: integration cost savings, sales and marketing
opportunities and the longer term scale advantages of being a leading
orthopaedics company.
At the Group level, integration cost savings are expected to amount to
GBP 45 million per annum by 2005, requiring exceptional cash costs of
GBP 130 million to implement. These will enable the Combined Group to
target an improvement of its pre-goodwill operating margin to 23% by 2005/6,
up from Smith & Nephew's previous guidance of 21%, and with stronger cash
generation. This is expected to enhance earnings per share of the Combined
Group (before amortisation of goodwill and exceptional integration costs) by
mid single digits in 2004 and approaching double digits in 2005 when the
post-tax return on investment is expected to meet Smith & Nephew Group's
weighted average cost of capital. The Combined Group's tax rate is expected to
be 29% going forward.
Opportunities to combine the organisations to present a significant force in
orthopaedics in each of the key markets of the US, Europe and Japan have been
identified. The combination of each company's sales relationships in existing
accounts with the expanded product range is expected to lead to an increase in
sales force productivity and opportunities to launch innovative products
across an expanded sales force. Extending proprietary technologies such as
Oxinium, Durasul and Metasul throughout the product range is expected to
develop improved demand for the Combined Group's products. These, together
with related cost
13
savings, will enable the Orthopaedics Division to target a pre-goodwill
operating margin of 27% by 2005/6.
Longer term, the opportunity to develop and manufacture a unified range of
next generation products will lead to further benefits. The enhanced scale of
the Combined Group's strategic research and development will enable it to
invest at the forefront of orthopaedic product development and its increased
market presence will enable a stronger profile to be built with major customer
groups.
Structure and Management
The Chairman of the Combined Group will be Dudley Eustace, its Chief Executive
will be Chris O'Donnell and the Finance Director will be Peter Hooley. The
Combined Group will consist of five divisions - in order of sales revenue,
Orthopaedics, Wound Management, Endoscopy, Spine and Dental - and will operate
from major manufacturing and market support facilities in the UK, Switzerland
and the US.
Dr. Max Link, Chairman and Chief Executive of Centerpulse, will join the Board
of Smith & Nephew Group as a non-executive director and one of two Vice
Chairmen on completion of the Transaction. Rene Braginsky, Centerpulse board
member, will also join the board of Smith & Nephew Group as a non-executive
director. Dr. Rolf Stomberg, a current Smith & Nephew Board member, will
become a Vice Chairman of Smith & Nephew Group.
Benefits for all Stakeholders
The Directors of both Smith & Nephew and Centerpulse believe that, in addition
to creating value for shareholders of the Combined Group, the Transaction will
deliver significant benefits for patients, surgeons, hospitals and employees:
o Patients will benefit from the pooling of research and development
activities, resulting in better targeted and more optimised product
development which will deliver enhanced product performance
o Surgeons and hospitals will benefit from a wider product offering,
broader infrastructure and enhanced delivery of services and solutions
o Employees will benefit from being part of one of the world's leading
orthopaedic groups, operating in a dynamic and fast-growing industry and
with the resources and depth to compete with other market leaders in the
sector
New Holding Company
Smith & Nephew Shareholders will exchange their Smith & Nephew Shares for
shares in a new holding company, Smith & Nephew Group, on a one-for-one basis
by means of a Court Scheme. Smith & Nephew Group will be the holding company
of the Combined Group. Smith & Nephew Group is tax resident in Switzerland,
whilst Smith & Nephew will remain tax resident in the UK. Arrangements will be
made to maintain the local tax treatment of dividends for shareholders.
14
The Court Scheme will be conditional on each of the Centerpulse Offer and
InCentive Offer having become wholly unconditional, save for conditions
relating to the Court Scheme.
Details of the Centerpulse Offer
The share and cash offers for Centerpulse and InCentive will be made by Smith
& Nephew Group. It will offer 25.15 New Smith & Nephew Group Shares and CHF
73.42 in respect of each Centerpulse Share so that Centerpulse and InCentive
shareholders will collectively own 24% of the Combined Group. Centerpulse and
InCentive shareholders will also be offered a Collective Mix and Match
Facility whereby they may elect to receive more or less cash to the extent
that other Centerpulse or InCentive shareholders have elected to receive more
or fewer New Smith & Nephew Group Shares. Holders of Centerpulse ADSs will be
offered 0.2515 New Smith & Nephew Group's ADSs per Centerpulse ADS and CHF
7.342 in cash and may participate in the Collective Mix and Match Facility.
On the basis of Smith & Nephew's closing share price of 381.25p on 19 March
2003, the Centerpulse Offer values each Centerpulse Share at CHF 282 and the
total issued share capital of Centerpulse at CHF 3.3 billion (GBP 1.5
billion). The Centerpulse and InCentive Offers will together result in the
issue of 298 million New Smith & Nephew Group Shares and a net payment of CHF
870 million (GBP 400 million) in cash, after taking account of InCentive's
expected cash balances.
Smith & Nephew Group will assume Centerpulse's outstanding net debt which
stood at CHF 358 million (GBP 165 million) as at 31 December 2002. Smith &
Nephew Group has entered into a new underwritten debt facility of $2.1
billion, inter alia to refinance the existing net debt of both Smith & Nephew
and Centerpulse, to finance the cash element of the Offers and to provide
working capital headroom.
Pursuant to the Centerpulse Transaction Agreement, Smith & Nephew and
Centerpulse have agreed that one party shall make a cost reimbursement payment
of CHF 20 million to the other in certain circumstances.
The primary listing of the Combined Group will be in London. Smith & Nephew
Group will seek a secondary listing of its shares on the SWX Swiss Exchange as
of the Settlement Date or as soon thereafter as is practicable. Smith & Nephew
Group intends to replicate Smith & Nephew's current ADS listing in the United
States.
The Centerpulse Offer has been unanimously recommended by the Board of
Centerpulse. The Centerpulse Offer is conditional, inter alia, on the approval
of Smith & Nephew's shareholders, on regulatory clearances and on the Court
Scheme having become effective.
Details of the InCentive Offer
InCentive's portfolio is currently being rationalised so as eventually to
comprise only Centerpulse Shares and cash. The terms of the InCentive Offer
will be such that in respect of InCentive's holding in Centerpulse they will
precisely reflect the terms of the Centerpulse Offer.
15
The offer price for each InCentive Share shall be (a+b)/c where:
a = The total amount of New Smith & Nephew Group Shares and amount of
cash that would be payable under the Centerpulse Offer for the
Centerpulse Shares held by InCentive (the "Centerpulse Holding")
b = The adjusted net asset value (positive or negative) of InCentive
(the "Adjusted NAV") calculated as at the last day of the InCentive
Offer period but excluding the Centerpulse Holding and attributing no
value to any InCentive Shares held by InCentive or its subsidiaries
(the "Treasury Shares"), as confirmed by InCentive's auditors
c = The total number of InCentive Shares in issue on the last day of
the InCentive Offer period less the number of Treasury Shares on that
date
As a result, the consideration for each InCentive Share will consist of (i) an
element of New Smith & Nephew Group Shares and cash which will mirror
InCentive's Centerpulse Holding; plus or minus (ii) the cash attributable to
Adjusted NAV of InCentive excluding the Centerpulse Holding. If the Adjusted
NAV is negative, then the cash element attributable to the Centerpulse Holding
shall be reduced, pro rata, and if after such reduction there is still a
negative balance, the number of New Smith & Nephew Group Shares to be issued
shall be reduced by a corresponding amount.
InCentive and Centerpulse shareholders will also be offered a Collective Mix
and Match Facility whereby they may elect to receive more or less cash to the
extent that other InCentive or Centerpulse shareholders have elected to
receive more or fewer New Smith & Nephew Group Shares.
Shareholders representing 77% of InCentive's issued share capital have
undertaken irrevocably to accept the InCentive Offer. Furthermore, Smith &
Nephew has been granted a right of first refusal over their shares in
InCentive in the event of a third party making a higher offer for Centerpulse
and the third party offer becoming unconditional as to acceptances.
Pursuant to the InCentive Transaction Agreement, Smith & Nephew and InCentive
have agreed that one party shall make a cost reimbursement payment of CHF 4
million to the other in certain circumstances.
The InCentive Offer has been unanimously recommended by the Board of InCentive
and is conditional, inter alia, on the Centerpulse Offer having been declared
wholly unconditional and the Court Scheme having become effective.
Collective Mix and Match Facility
Accepting Centerpulse Shareholders under the Centerpulse Offer and accepting
InCentive Shareholders under the InCentive Offer (the latter in respect of
InCentive's holding in Centerpulse) (together the "Accepting Shareholders")
may elect to take fewer New Smith & Nephew Group Shares or more New Smith &
Nephew Group Shares than their basic entitlement under the relevant Offer, but
elections under both Offers (taken together) to receive more New Smith &
Nephew Group Shares (together the "Excess Shares") will only
16
be satisfied to the extent that elections have been made under both Offers
(taken together) by Accepting Shareholders to receive fewer New Smith & Nephew
Group Shares (together referred to as the "Available Shares"). The Available
Shares will be allocated to the applicants for Excess Shares in proportion to
the number of Excess Shares applied for. If the total number of Available
Shares exceeds the total number of Excess Shares applied for, the Available
Shares shall be limited to an amount equal to the Excess Shares and vice
versa. Once the share allocations have been determined, the cash element of
the consideration will be reduced or increased (as the case may be) for each
Accepting Shareholder who has been allocated an increased or reduced number of
New Smith & Nephew Group Shares. All calculations shall be made by reference
to the number of acceptances and elections as of the last day of the
additional acceptance period and, for the purposes of these calculations, the
value per New Smith & Nephew Group Share shall be CHF 8.29, the same as the
closing middle market price of a Smith & Nephew share on the day immediately
prior to this announcement of 381.25p.
Fractional Entitlements to Both Offers
Fractions of New Smith & Nephew Group Shares will not be allotted or issued to
accepting Centerpulse or InCentive shareholders but will be aggregated and
sold in the market and the net proceeds of sale distributed on a pro rata
basis to the Centerpulse and InCentive shareholders who accept the Offers and
are entitled to them.
Product Recall Liability
Last year the Board of Centerpulse succeeded in putting in place measures to
deal with claims arising from a major recall of reconstructive implants dating
back to 5 December 2000. This involved Centerpulse entering into a district
court approved class action settlement for US residents on 13 March 2002, and
establishing a Settlement Trust to pay claims to class members in the US who
undergo surgery to replace an affected hip implant prior to 5 June 2003 or an
affected tibial base plate prior to 17 November 2003. The Settlement Trust was
funded with approximately $1.1 billion, of which Centerpulse contributed $725
million in cash on 4 November 2002. Centerpulse's insurers and former parent
company funded the balance. The Settlement Trust funds the first 4,000 valid
claims, and Centerpulse remains liable for 50% of the cost of settled claims
in excess of that number. The Settlement Trust also funds the first 64 settled
claims for reprocessed hip implants replaced before 8 September 2004, with
Centerpulse remaining liable in full for settled claims beyond this number.
As at 14 March 2003, the administrator of the Settlement Trust had received
4,295 claim forms in relation to hip implants and tibial base plates and 140
claim forms for reprocessed hip implants. The administrator has determined
that for these classes of claims, 3,718 and 105 respectively are likely to be
valid. It is not known at present how many more claims will be made or whether
the remaining and future claims are valid and hence how many will qualify for
settlement.
The Board of Smith & Nephew has examined the issue in detail. Although the
Board of Centerpulse believes that the remaining provision in its year end
audited accounts will be adequate to provide for the liabilities that may
arise from the product recall, the Board of Smith & Nephew is mindful that
there is a possibility that the eventual number of revisions and cost of
settling claims from the product recall issue may exceed the level of
provision
17
made by Centerpulse. The Board of Smith & Nephew has taken into account this
possibility in agreeing the terms and structure of the proposed Transaction.
Dividends
In respect of the final dividend of 3.00p per Smith & Nephew ordinary share
recommended for the year ended 31 December 2002, the existing Smith & Nephew
Shareholders will receive their entitlement in full. The New Smith & Nephew
Group Shares being issued as consideration for Centerpulse will not rank for
this final dividend. Centerpulse does not intend to pay a dividend in respect
of 2002. Smith & Nephew's dividend policy remains unchanged.
Smith & Nephew 5.5% Cumulative Preference Shares
Resolutions will be put before Smith & Nephew Shareholders to enable the
company's 5.5% Cumulative Preference Shares to be repaid at a price of 138p
per share together with accrued interest. Irrevocable commitments to support
these resolutions at a class meeting have been obtained from preference
shareholders' holding 210,313 preference shares, representing approximately
78% of outstanding preference shares.
The Offers are not conditional on the passing of these resolutions. However,
it is intended that these resolutions will be placed before Smith & Nephew
Shareholders, even if the Offers do not proceed.
Current Trading and Prospects for Smith & Nephew
At this early stage of the year, sales at Smith & Nephew's Orthopaedics and
Wound Management divisions have seen a solid start to 2003. Orthopaedics' move
to two divisions - Reconstructive Implant and Trauma - is progressing well and
the introduction of specialised sales forces in the US is proceeding to plan.
Endoscopy has experienced some pressure from the increased re-use of
disposable blades in the United States. Smith & Nephew's margin in the first
half of the year will be impacted by the assumption of the full costs of the
Dermagraft launch. Looking to the full year, Smith & Nephew remains confident
of meeting its margin expansion and pre-goodwill earnings per share growth
targets.
Current Trading and Prospects for Centerpulse
The following Outlook statement is included in Centerpulse's results for the
year ended 31 December 2002, released today:
"Trading since year end has been in line with management expectations.
Centerpulse remains confident that it will be able to grow in its core markets
at least in line with the market. In Orthopaedics, the company believes that
it can maintain a leading role in its primary markets in Europe and generate
solid growth in the US and Japan by continuing to deliver first-class products
and building long-term trusting relationships. The Spine-Tech Division intends
to launch several new products in the US market, with the introduction of the
Dynesys stabilization system and the radiolucent cages in 2003 expected to
positively impact sales growth. The Dental Division has reinforced its market
position by enhancing its product offerings with innovative solutions for
aesthetics as well as leading educational programs."
18
General
In accordance with Swiss takeover rules, Smith & Nephew Group is today also
issuing pre-announcements for both the Centerpulse Offer and the InCentive
Offer to inform the Swiss market of its intention to launch the Offers.
Following today's announcements, it is expected that formal documentation will
be despatched to Smith & Nephew Shareholders, Centerpulse Shareholders and
InCentive Shareholders by mid April with the Court Scheme and the Offers
completing towards the middle of the year. Centerpulse Shareholders and
InCentive Shareholders will receive listing particulars and an offer
prospectus and Smith & Nephew Shareholders will receive listing particulars
and scheme documentation seeking their approval of the Transaction. The
documentation will specify the necessary actions to be taken by Smith & Nephew
Shareholders, Centerpulse Shareholders and InCentive Shareholders. Smith &
Nephew Group will seek to file a registration statement with the SEC, which
will enable Centerpulse Shareholders residing in the United States to accept
the Centerpulse Offer.
Recommendations
The Transaction has the unanimous support and recommendation of the Boards of
Smith & Nephew, Centerpulse and InCentive.
The Smith & Nephew Directors, who have been advised by Lazard, consider the
Transaction to be in the best interests of the company and of Smith & Nephew
Shareholders as a whole. In providing advice to the Smith & Nephew Directors,
Lazard has placed reliance on the Smith & Nephew Directors' commercial
assessment of the Transaction. Accordingly, the Smith & Nephew Directors will
be unanimously recommending that Smith & Nephew Shareholders vote in favour of
the resolutions to be proposed at the shareholders' meeting to be convened in
relation to the Transaction, and the court convened shareholders' meeting to
approve the Court Scheme as they intend to do in respect of their own
beneficial holdings of, in aggregate, 295,618 Smith & Nephew Shares and 21,331
Smith & Nephew ADSs, representing approximately 0.055 per cent of the current
issued ordinary share capital of Smith & Nephew.
The Board of Centerpulse considers the terms of the Centerpulse Offer to be
fair and reasonable. The Board of Centerpulse has received a fairness opinion
from each of Lehman Brothers and UBS Warburg. More detail on the fairness
opinions will be set out in the Centerpulse Offer documentation. The
Centerpulse Directors unanimously recommend that shareholders of Centerpulse
should accept the Centerpulse Offer.
The Board of InCentive considers the terms of the InCentive Offer to be fair
and reasonable as it is equal to the Centerpulse Offer. The InCentive
Directors unanimously recommend that shareholders of InCentive accept the
InCentive Offer. The four main shareholders of InCentive (which together hold
77% of all outstanding InCentive shares) have already agreed to accept the
InCentive Offer.
19
Data
Exchange rates of CHF 2.1756 : GBP 1 and CHF 1.3915 : US$1 have been used
in this announcement. Other information contained in this announcement (market
data as of 19 March 2003):
Smith & Nephew Share price 381.25p
Centerpulse Share price CHF 277
Smith & Nephew Shares outstanding 929,128,403
Centerpulse Shares outstanding 11,853,153
There will be a meeting for analysts at 9.30 am GMT in London today at
City Presentation Centre, 4 Chiswell Street, Finsbury Square, London,
UK, followed by a teleconference for US analysts and shareholders at
3.30 pm GMT/10.30 am EST. A press conference will be held at City
Presentation Centre this morning at 11.30 am GMT. Please call Mo Noonan
at Financial Dynamics on +44 (0) 20 7831 3113 for details.
The analyst meeting will be webcast as will the tele-conference
today at 3.30 pm GMT on www.smith-nephew.com/investors and on
www.centerpulse.com/centerpulse/investors/High resolution
photographs are available to the media free of charge at
www.newscast.co.uk
On Friday 21 March 2003, there will also be a meeting for Swiss analysts
and shareholders at 10.00 am GMT/11.00 am CET at Swissotel,
Zurich-Oerlikon, Switzerland. Please contact Suha Demokan at Centerpulse
on +41 (0) 1 306 9825 for details.
20
ENQUIRIES:
Smith & Nephew Tel: +44(0)20 7401 7646
Chris O'Donnell, Chief Executive
Peter Hooley, Finance Director
Angie Craig, Corporate Affairs Director
Centerpulse
Max Link, Chairman and Chief Executive
Urs Kamber, Chief Financial Officer
Beatrice Tschanz, Corporate Communications Tel: +41(0)1 306 9646
Suha Demokan, Investor Relations Tel: +41(0)1 306 9825
InCentive Tel: +41(0)1 205 9300
Rene Braginsky, CEO and Delegate of the Board
Raoul Bloch
Lazard Tel: +44(0)20 7588 2721
(Financial Advisers to Smith & Nephew)
Nicholas Shott
Cazenove Tel: +44(0)20 7588 2828
(Brokers to Smith & Nephew)
Duncan Hunter
Tony Brampton
Dresdner Kleinwort Wasserstein Tel: +44(0)20 7623 8000
(Brokers to Smith & Nephew)
Jim Hamilton
Angus Kerr
Lehman Brothers
(Financial Advisers to Centerpulse)
Kenneth Siegel Tel: +1 212 526 7000
Henry Phillips Tel: +44(0)20 7601 0011
Joseph Kohls Tel: +1 212 526 7000
UBS Warburg
(Financial Advisers to Centerpulse)
Karl Schmidt Tel: +44(0)20 7568 5959
Liam Beere Tel: +44(0)20 7568 2286
Lombard Odier Darier Hentsch & Cie
(Financial Advisers to InCentive)
Romeo Cerutti Tel: +41(0)1 214 1330
Marc Klingelfuss Tel: +41(0)1 214 1332
Financial Dynamics
(PR for Smith & Nephew)
London: David Yates/Jonathan Birt Tel: +44(0)20 7831 3113
New York: Anton Nicholas/Deborah Ardern-Jones Tel: +1 212 850 5626
21
Lazard is acting for Smith & Nephew in connection with the Transaction and
no-one else and will not be responsible to anyone other than Smith & Nephew
for providing the protections offered to clients of Lazard nor for providing
advice in relation to the Transaction.
Lehman Brothers is acting for Centerpulse in connection with the Transaction
and no-one else and will not be responsible to anyone other than Centerpulse
for providing the protections offered to clients of Lehman Brothers nor for
providing advice in relation to the Transaction.
UBS Warburg is acting for Centerpulse in connection with the Transaction and
no-one else and will not be responsible to anyone other than Centerpulse for
providing the protections offered to clients of UBS Warburg nor for providing
advice in relation to the Transaction.
Lombard Odier Darier Hentsch & Cie is acting as financial adviser for
InCentive in connection with the Transaction and no-one else and will not be
responsible to anyone other than InCentive for providing the protections
offered to clients of Lombard Odier Darier Hentsch & Cie nor for providing
advice in relation to the Transaction. In addition, Smith & Nephew has
entrusted Lombard Odier Darier Hentsch & Cie with the technical execution of
the InCentive Offer.
No offer or invitation to acquire or exchange securities in Centerpulse or
InCentive is being made now. Any such offer or invitation will only be made in
documents to be published in due course and any such acquisition or exchange
should be made solely on the basis of information contained in such documents.
The Centerpulse Offer will not be made, directly or indirectly, in or into, or
by use of the mails or by any means or instrumentality (including, without
limitation, telephonically or electronically) of interstate or foreign
commerce of, or of any facility of a national securities exchange of, Canada,
Australia or Japan. Accordingly, copies of this document and any related
documents are not being, and must not be, directly or indirectly, mailed or
otherwise forwarded, distributed or sent in or into or from, Canada, Australia
or Japan and persons receiving this document and any related documents
(including custodians, nominees and trustees) must not mail or otherwise
forward, distribute or send it in or into or from, Canada, Australia or Japan.
Relevant clearances have not been, nor will they be, obtained from the
securities commission of any province or territory of Canada; no prospectus
has been lodged with, or registered by, the Australian Securities and
Investments Commission or the Japanese Ministry of Finance; and the New Smith
& Nephew Group Shares have not been, nor will they be, registered under or
offered in compliance with applicable securities laws of any state, province,
territory or jurisdiction of Canada, Australia or Japan. Accordingly, the New
Smith & Nephew Group Shares may not (unless an exemption under relevant
securities laws is applicable) be offered, sold, resold or delivered, directly
or indirectly in or into Canada, Australia or Japan or any other jurisdiction
as to do so may constitute a violation of the relevant laws of, or require
registration thereof in such jurisdiction or to, or for the account or benefit
of, a person in or resident in Canada, Australia or Japan.
The InCentive Offer is not being made in any country where such offer would be
considered illegal or would otherwise violate any applicable law or regulation
or where Smith & Nephew may be obliged to change the terms of the InCentive
Offer, to file an additional application with any authorities or other
institutions or to undertake additional measures in relation to the InCentive
Offer. It is not foreseen to extend the InCentive Offer to such jurisdictions.
Documents in relation to this transaction must not be distributed in such
jurisdictions or sent to such jurisdictions. Persons in such jurisdictions
must not use these documents for marketing purposes for sales of shares of
InCentive.
22
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of
the United States Private Securities Litigation Reform Act of 1998. Statements
that are not strictly historical statements, including statements about Smith
& Nephew's and Centerpulse's beliefs and expectations, constitute
forward-looking statements. By their nature, forward-looking statements are
subject to risk and uncertainty because they relate to events and depend on
circumstances that will occur in the future. The forward-looking statements in
this release include, but are not limited to, statements addressing the
following subjects: expected timing of the Transaction; future financial and
operating results; actions to be taken by the Combined Group following the
Transaction; and the timing and benefits, including synergy benefits, of the
Transaction. The following factors, among others, could cause results to
differ materially from those described in the forward-looking statements:
inability to obtain, or meet the conditions imposed for, regulatory approvals
for the Transaction; the failure of the shareholders of Smith & Nephew to pass
the resolutions necessary to implement the Transaction; the failure of the
court to sanction the Court Scheme; the failure of the minimum tender
condition or the failure of other conditions to the Offer; the risk that the
businesses will not be integrated successfully and that the expected synergies
and cost savings will not be achieved; and other economic, business,
competitive and/or regulatory factors affecting the businesses of Smith &
Nephew and Centerpulse generally. More detailed information about such
economic, business, competitive and/or regulatory factors is set forth in
Centerpulse's filings with the SEC. Smith & Nephew and Centerpulse are under
no obligation, and expressly disclaim any obligation, to update or alter their
forward-looking statements, whether as a result of new information, future
events or otherwise.
Additional Information
Any offer in the United States will only be made through a prospectus, which
is part of a registration statement to be filed with the SEC. Centerpulse
shareholders who are US persons or are located in the United States are urged
to carefully review the registration statement and the prospectus included
therein, the Schedule TO and other documents relating to the offer that will
be filed by Smith & Nephew with the SEC because these documents contain
important information relating to the Centerpulse Offer. You are also urged to
read the related solicitation/recommendation statement on Schedule 14D-9 that
will be filed with the SEC by Centerpulse relating to the Centerpulse Offer.
You may obtain a free copy of these documents after they have been filed with
the SEC, and other documents filed by Smith & Nephew and Centerpulse with the
SEC, at the SEC's Web site at www.sec.gov. Once the registration statement, as
well as any documents incorporated by reference therein, the Schedule TO and
the Schedule 14D-9 have been filed with the SEC, you will also be able to
inspect and copy these documents at the public reference room maintained by
the SEC at 450 Fifth Street, NW, Washington, D.C. 20549. Please call the SEC
at 1-800-SEC-0330 for further information about the public reference room. YOU
SHOULD READ THE PROSPECTUS AND THE SCHEDULE 14D-9 CAREFULLY BEFORE MAKING A
DECISION CONCERNING THE CENTERPULSE OFFER.
23
APPENDIX I
CONDITIONS TO THE CENTERPULSE OFFER
The Centerpulse Offer is expected to be subject to the following conditions:
1. The General Meetings of Smith & Nephew shareholders having:
a. approved the transactions contemplated by the Centerpulse
Transaction Agreement; and
b. passed the necessary resolutions to effect a Court Scheme under
which Smith & Nephew will become a wholly owned subsidiary of Smith
& Nephew Group plc
and the Court Scheme having become effective.
2. The Smith & Nephew Group shares to be issued in connection with the
Centerpulse Offer having been admitted to the Official List of the
United Kingdom Listing Authority and to trading on the London Stock
Exchange plc and the listing of the additional ADSs of Smith & Nephew
Group on the New York Stock Exchange to be issued in connection with
the Centerpulse Offer having been approved.
3. All competent EU, US and other foreign authorities having approved
and/or granted clearance of the acquisition of Centerpulse without a
party being required to meet any condition or requirement giving rise
to (a) costs and/or loss of EBITA in excess of CHF 23 million in the
aggregate; or (b) a decrease in consolidated turnover of CHF 75
million in the aggregate of the Combined Group. In addition, no other
orders or directions by any court or other authority prohibiting the
completion of the Centerpulse Offer having been issued.
4. The Registration Statement on Form F-4 to be filed by Smith & Nephew
Group with the SEC in connection with the Centerpulse Offer having
become effective in accordance with the provisions of the US
Securities Act; no stop order suspending the effectiveness of the
Exchange Offer Registration Statement having been issued by the SEC
and no proceedings for that purpose having been initiated by the SEC
and not concluded or withdrawn.
5. Smith & Nephew Group having received valid acceptances for at least
75% of the total number of the Centerpulse shares outstanding
(including Centerpulse shares represented by ADSs and, provided the
InCentive Offer has become or is capable of becoming unconditional,
Centerpulse Shares held by InCentive) on a fully diluted basis at the
expiry of the (possibly extended) offer period.
6. Three of Centerpulse's current board members having resigned from
Centerpulse's board of directors subject to completion of the
Centerpulse Offer, and the other board members having entered into a
fiduciary arrangement with Smith & Nephew Group covering the period
until a Centerpulse General Meeting will have resolved to elect the
persons proposed by Smith & Nephew Group to the board of directors of
Centerpulse, subject to completion of the Centerpulse Offer.
24
7. Centerpulse until the end of the (possibly extended) offer period
(save for extensions beyond the statutory 40 day trading period solely
as a result of the Court Scheme not having become effective) not
having:
a. become subject to a mandated recall for a product, the consolidated
turnover of which product family exceeded CHF 75 million in
Centerpulse's consolidated prior year results and such recall having
resulted, according to the opinion of an investment bank or
accounting firm of international repute to be appointed by Smith &
Nephew Group with the consent of Centerpulse (the "Expert"), in costs
and/or loss of EBITA (after insurance payable to Centerpulse) in
excess of CHF 23 million; or
b. suffered a disablement of its manufacturing facilities in Winterthur
or Austin having resulted, according to the opinion of the Expert, in
costs and/or loss of EBITA (after insurance payable to Centerpulse) in
excess of CHF 23 million.
Smith & Nephew Group reserves the right to waive one or more of the conditions
set out above (other than conditions 1, 2, 3 as to the requirement to obtain
merger approval as such and 4), either in whole or in part, or to withdraw the
Centerpulse Offer if one or more of the above conditions is not met.
25
APPENDIX II
CONDITIONS TO THE INCENTIVE OFFER
The InCentive Offer is expected to be subject to the following conditions:
1. All conditions of the Centerpulse Offer having been satisfied or waived by
Smith & Nephew Group.
2. The General Meeting of InCentive shareholders having:
a. received the resignation of all current members of InCentive's board
of directors or required these to resign and elected the persons
proposed by Smith & Nephew Group as new members of the board of
directors, subject to all other conditions to this offer being
accepted or waived by Smith & Nephew Group; and
b. to the extent required approved the InCentive Transaction Agreement
and the actions contemplated thereunder.
3. Smith & Nephew Group having received valid acceptances for at least 80% of
the InCentive Shares outstanding at the expiry of the (possibly extended)
offer period.
4. No court or regulatory authority having issued a decision or an order which
prohibits the InCentive Offer or its completion or renders this offer or
its completion unlawful.
5. InCentive or any of its subsidiaries not having disposed, or agreed to
dispose (including acceptance of any offer), of any Centerpulse Shares held
by it or its subsidiaries and not having become obliged to do so, save for
any such transfer within the InCentive group.
6. Until the end of the (possibly extended) offer period no litigation
proceedings having been initiated against InCentive and its subsidiaries
which have not been made public prior to the date hereof and which are
neither insured nor provisioned for in the consolidated balance sheet of
InCentive and whose amount in dispute is in excess of CHF 35 million in the
aggregate.
7. The General Meetings of Smith & Nephew shareholders having passed the
necessary resolutions to effect a Court Scheme under which Smith & Nephew
will become a wholly owned subsidiary of Smith & Nephew Group plc, and the
Court Scheme having become effective.
Smith & Nephew Group reserves the right to waive one or more of the conditions
set out above other than condition 7, either in whole or in part, and to
withdraw the InCentive Offer if one or more of the above conditions is not
met.
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APPENDIX III
DEFINITIONS
The following definitions apply throughout this announcement, unless the
contest requires otherwise:
"Act" the Companies Act 1985 (as amended)
"Board" or "Directors" in respect of any given company, the directors of
that company
"Centerpulse" Centerpulse AG, Zurich, Switzerland
"Centerpulse Offer" the share and cash offer intended to be
launched by Smith & Nephew Group on or about 16
April 2003 for all publicly held Centerpulse
Shares
"Centerpulse Shareholder" a holder of Centerpulse Shares
"Centerpulse Share" registered shares of nominal value CHF 30 each in
the capital of Centerpulse
"Centerpulse Transaction the agreement dated 20 March 2003, whereby Smith &
Agreement" Nephew and Centerpulse have agreed to combine their
businesses to create a leading orthopaedics
company
"Collective Mix and Match the facility by which InCentive shareholders
Facility" (in respect of InCentive's holding in Centerpulse)
may under the InCentive Offer and Centerpulse
shareholders may under the Centerpulse Offer
elect to take up more or less New Smith & Nephew
Group Shares than their basic entitlement,
subject to matching elections having been made by
shareholders in Centerpulse and InCentive to
elect to receive more or less cash than their
basic entitlement
"Combined Group" Smith & Nephew Group, Smith & Nephew, Centerpulse
and InCentive, and their respective subsidiaries
"Court" the High Court of Justice of England and Wales
"Court Scheme" a scheme of arrangement pursuant to section
425 of the Act sanctioned by order of the Court
whereby Smith & Nephew will become a wholly owned
subsidiary of Smith & Nephew Group
"EBITA" earnings before interest, tax and amortisation of
goodwill
"EBITDA" earnings before interest, tax, depreciation and
amortisation of goodwill
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"EPS" earnings per share
"Exchange Offer the registration statement to be filed in the
Registration Statement" United States with the SEC and accompanied by a
prospectus
"InCentive" InCentive Capital AG, Zug, Switzerland, an
investment company listed on the Swiss Stock
Exchange
"InCentive Offer" the share and cash offer intended to be
launched on or about 16 April 2003 for all
publicly held InCentive Shares
"InCentive Shareholder" a holder of InCentive Shares
"InCentive Shares" bearer shares of nominal value of CHF 20 each in
the capital of InCentive
"InCentive Transaction the agreement dated 20 March 2003, whereby Smith &
Agreement" Nephew has undertaken to acquire, inter alia,
InCentive's 19% of the share capital of
Centerpulse by way of a share and cash offer for
InCentive through Smith & Nephew Group
"Lazard" Lazard & Co., Limited
"Lehman Brothers" Lehman Brothers Inc.
"New Smith & Nephew new ordinary shares in the capital of Smith &
Group Shares" Nephew Group to be issued in connection with the
Offers and pursuant to the Court Scheme
"Offers" together the Centerpulse Offer and the InCentive
Offer
"Official List" the Official List of the UK Listing Authority
"SEC" United States Securities and Exchange Commission
"Settlement Date" the date on which the consideration due under the
Offers is posted to Centerpulse Shareholders and
InCentive Shareholders
"Settlement Trust" a trust set up by Centerpulse, pursuant to
a court approved class action settlement for US
residents on 13 March 2002, to pay claims to class
members in the US who undergo surgery to replace
an affected hip implant prior to 5 June 2003 or
an affected tibial base plate prior to 17
November 2003
"Smith & Nephew" Smith & Nephew plc
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"Smith & Nephew Directors" members of the board of directors of Smith &
Nephew
"Smith & Nephew Group" a company to be called Smith & Nephew
Group plc which will become the holding company
of the Combined Group
"Smith & Nephew Shareholder" a holder of Smith & Nephew Shares
"Smith & Nephew Shares" ordinary shares of 12 2/9 pence each in Smith &
Nephew
"Transaction" together the Offers and the Court Scheme
"UBS Warburg" UBS Warburg LLC, a wholly owned subsidiary of UBS
AG
"UK" or "United Kingdom" United Kingdom of Great Britain and Northern
Ireland
"US" or "United States" the United States of America, its territories and
possessions and any state of the United States
and the District of Columbia
"US Securities Act" United States of America Securities Act of 1933