From the skyscrapers of Wall Street to the factories of northern Indiana, cheers rang out for one of the biggest mergers of the year. For $13.35 billion, Goldman Sachs and a group of giant private equity firms agreed in April to sell one Indiana medical device maker to another.
But possible acts of bribery abroad may have complicated that deal — and raised larger questions about the way prosecutors mete out justice for big corporations, according to confidential documents reviewed by The New York Times and interviews with lawyers briefed on the matter.
Biomet, the medical devices company being sold to its rival Zimmer Holdings, is suspected of helping to bribe government officials in Mexico and Brazil, according to the confidential documents, which have not been previously reported.
An email from an anonymous whistle-blower laid bare the problems in Brazil, reporting that distributors Biomet had hired to sell its orthopaedic devices were “paying kickbacks” to government doctors.
The fate of Biomet’s merger now hinges partly on the outcome of bribery investigations by the Justice Department and the Securities and Exchange Commission, painful reminders of a separate 2012 federal case that accused Biomet of foreign bribery. Although Biomet disclosed the thrust of its problems to Zimmer before striking the deal — and neither company has shown signs of abandoning it — an unexpectedly steep penalty for Biomet could alter the price of the deal.
the scenes in Washington, Biomet’s lawyers have opened talks to settle the investigation, according to the lawyers briefed on the matter. And to safeguard the deal, which is set to close in the first quarter of 2015, Biomet asked the government to resolve the investigation promptly.
The effort may not be in vain. Federal guidelines require prosecutors to weigh the collateral consequences of criminally charging a company, including “disproportionate harm” to innocent shareholders. In a guidebook about foreign bribery cases, the Justice Department and the SEC also noted that in the context of mergers, the government often “declined to take action” against companies that cooperated fully.
Even as the Justice Department investigates Biomet employees, a steep fallout for the company seems unlikely. According to the lawyers, the Justice Department has discussed the possibility of reaching a so-called deferred prosecution deal with Biomet that would withhold criminal charges in exchange for certain concessions. Under that plan, prosecutors would impose criminal charges only on Biomet’s Brazilian and Mexican subsidiaries.
Biomet, Zimmer, the SEC and the Justice Department declined to comment.