Zimmer-Biomet Releases Spinoff Details

Public company divestitures to shareholders (aka “spinoffs”) in medical devices are rare but not unheard of. Last week, Zimmer Biomet (ZBH), filed a basket detailed legal documents on the spinoff of its spine and dental units into a stand-alone company which we now know will be called “ZimVie”.  Of interest, ZBH (back in the day, just Zimmer) once itself was spun-out of Bristol-Myers Squibb.

The news on this latest gyration isn’t new. This transaction has been contemplated for the better part of a year. The rationale is that it allows the core management teams increased strategic focus in markedly different sub-sectors, more efficient capital allocation, and ultimately profitability (e.g. accretion) to existing ZBH shareholders. Notably, this is a tax-free spinoff for ZBH shareholders.

It is also well known in the musculoskeletal industry that ZBH spine and dental have impinged on corporate growth and have distracted core management from share-taking initiatives in its traditional core strategic area of large joints. The goal is also to have ZimVie focus on revenue acceleration and margin growth outside of the ZBH corporate umbrella.

ZBH will retain a 20% equity ownership in Zimvie. The new CEO of ZimVie will be Vafa Jimali and other senior managers have been identified and contracted per the online documents.

Johnson & Johnson has separately given guidance that it plans on spinning off its consumer products division to allow the parent to focus more on its core pharma and med-devices strategies. That is likely a 2023 event. Other spinoffs in the industry include Colfax – itself a Danaher spin-off – spinning-off of DJO (to be called “Enovis”) this quarter.

We typically see these kinds of things with more mature, earnings-rich companies trying to unlock strategic value and earnings efficiencies to public shareholders.

Though market prognosticators believe the ZimVie spinoff will come to fruition in mid-2022, we await further details, which are likely to be released early next month (Feb 7) when ZBH releases its 4Q21 earnings.