FTC says evidence exists to block $2B Steris-Synergy buy

The Federal Trade Commission said it has evidence showing Synergy Health was ready to bring new technology to the U.S. sterilization market before Steris (NYSE:STE) offered $1.9 billion to purchase the company, and is seeking  seeking an injunction to block the deal.

The FTC claims Synergy was fully vested in a plan to expand into x-ray sterilization in the U.S., having approved a U.S. x-ray strategy and placed down payments for equipment for “building and start[ing] operation of at least 2 commercial scale X-ray facilities.”

The federal watchdog said the company planned for an eventual 2016 entry into the U.S. market with the new equipment and facilities, according to court documents.

“Synergy’s strategy was to transform the U.S. radiation sterilization business, moving gamma business to x-ray by capitalizing on customer concerns about the future availability and pricing of Cobalt-60.2,” the FTC wrote in its post-hearing brief.

Upon receiving the $1.9 billion offer from Steris, Synergy cut its plans to expand into the U.S., the federal watchdogs said. The agency claims the company found barriers to the deployment after it had already made plans for the expansion, and the only reason given for canceling the plans were in response to an FTC investigation of the merger.

“For the foregoing reasons, the FTC respectfully requests that this Court find that: (1) it is probable that Synergy would have entered the U.S. market by building one or more x-ray sterilization facilities within a reasonable time frame; and (2) it is likely that the FTC will succeed in proving the merits of its claim under Section 7 of the Clayton Act, and, accordingly, that the Court grant a preliminary injunction,” the FTC wrote in its conclusion.

Steris argues that the hurdles they found were authentic and Synergy would have struggled to realize their expansion into the U.S. should they have followed through.

The company said that the market for x-ray sterilization in the U.S. “deteriorated significantly” since Synergy’s initial plans were drawn and became intractable, so the company had to shutter the program, according to court documents.

“Even if the FTC’s investigation had influenced the timing of Synergy’s decision to end the project, that is not the question at issue. The question is whether Synergy would have entered the U.S. with x-ray within a reasonable time but for the merger. Overwhelming evidence reveals that the answer was, and remains, ‘no,'” Steris said in its post-hearing brief.

Steris offered to buy Synergy for about $1.9 billion in October, after the new rules were announced, in a deal that would allow the U.S.-based company to shift its domicile to the U.K. and cut its tax bill.

The deal has been hanging in the balance since the FTC began reviewing it in October. The companies said in mid-January that the FTC had requested additional information and documentary material related to the deal, effectively extending the initial deal closing of March 31. In March the companies postponed a shareholder vote on their proposed merger in order to comply with an information request from the FTC. U.K. regulators approved the deal in February.

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