Probe into Alleged Foreign Bribes at Biomet May Impact $13 Billion Merger‏ Deal

In one of the largest mergers this year, Goldman Sachs, along with some large private equity firms, agreed to sell one medical device manufacturer for another. Medical device company Biomet is being sold to rival Zimmer Holdings; however, Biomet is suspected of allegedly assisting in bribing government officials in Mexico and Brazil, according to confidential documents

The decision was made in April, The New York Times reported, and is scheduled to occur for a massive $13.35 billion; however, potential overseas bribery may have been involved, according to the confidential documents reviewed by The New York Times and interviews the media outlet conducted with attorneys who were briefed on the matter. An email from an anonymous whistleblower also discussed the problems occurring in Brazil, including reports that Biomet-hired distributors who were paid to sell Biomet orthopedic devices were “paying kickbacks” to government doctors.

The merger now depends, in part, on how bribery investigations conducted by the Justice Department (DOJ) and the Securities and Exchange Commission (SEC) will conclude. According to The New York Times, Biomet disclosed the issues to Zimmer before becoming involved in the deal, and both parties appear to remain invested in the merger; however, Biomet may face high penalties.

The lawyers briefed on the matter told The New York Times that the Justice Department has discussed the possibility of reaching what is known as a deferred prosecution agreement with Biomet. Under the agreement, criminal charges would be withheld in exchange for specific concessions. In this case, prosecutors would impose criminal charges, but only to the device maker’s Brazilian and Mexican subsidiaries.

Meanwhile, less than three years ago, Biomet reached a deferred prosecution agreement for similar acts involving bribery, noted The New York Times.

“There are good reasons for prosecutors to give new owners a chance to clean up a company,” said Brandon L. Garrett, 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,” he added, according to The New York Times.

In 2012, Biomet settled its first foreign bribery investigation. At that time, the Justice Department imposed a $17.28 million penalty, which was 20 percent below what federal guidelines considered a minimum punishment. Biomet was not criminally charged and the Justice Department agreed to a deferred prosecution agreement. The settlement focused on misconduct in countries in which health care workers were employed by the government. At the time, prosecutors indicated that Biomet authorized certain payments used to induce public health care workers to purchase Biomet products and that a firm that distributed Biomet products arranged the payments. Biomet ultimately ended its contract with the distributor, according to The New York Times.

The fact that this alleged activity mirrors the prior bribery means that Biomet may face “stiffer-than-expected federal penalties,” which may lead to Zimmer, in turn, seeking a reduced price, wrote The New York Times. Should prosecutors mandate Biomet and its subsidiaries plead guilty to criminal charges, the device maker may be subject to a temporary ban on participating in federal health care programs.

 

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