Steris, Synergy Shareholders to Vote on Merger in Wake of FTC Defeat

Shareholders of Steris and UK-based Synergy Health voted in favor of their proposed merger last Friday following a court’s refusal to stop the deal over the objections of the Federal Trade Commission.

The votes followed a decision issued Sept. 24, in which Judge Dan Polster of the U.S. District Court for the Northern District of Ohio refused to issue a temporary restraining order and preliminary injunction halting Mentor, Ohio-based Steris’ proposed acquisition of Synergy, indicating that he thought X-ray sterilization, the process at the heart of the FTC’s case, isn’t ready for the U.S. market.

In a short statement issued Oct. 1, the FTC said it has decided not to appeal the district court’s decision.

Last October, Steris — which offers gamma irradiation, ethylene oxide sterilization and laboratory services for devicemakers and other industries — announced its intention to buy UK-based Synergy for $1.9 billion in cash and stock, citing it as a way to accelerate international growth.

As the deal moved forward, Synergy said it was abandoning plans to bring X-ray sterilization to the U.S. Currently, the only two sterilization processes are gamma and e-beam.

Synergy’s X-ray method could have proven highly disruptive to the U.S. market, which has two major players — Steris and larger rival Sterigenics. Combined, those two companies account for about 85 percent of all U.S. contract sterilization services.

The addition of Synergy could have given Steris and unfair advantage, the FTC has maintained, adding that the two abandoned the X-ray plans only after the commission began investigating the tie-up. While Steris and Synergy have maintained that using X-ray was not a sound financial strategy, the FTC has disagreed.

Polster determined that the two companies were right to worry.

“The evidence … shows that, despite Synergy’s best efforts to advance the X-ray project, news on the economic front worsened,” according to court documents.

For example, in January 2015, IBA, a company providing equipment for the X-ray sterilization process, priced its equipment at about $6 million — more than 25 percent of the capital cost for one facility. The price was more than Synergy had anticipated. “The evidence shows that, despite Synergy’s best efforts, it was unable to harness the capital costs to build x-ray facilities in the United States. Synergy has only $25 [million] to $40 million per year to spend on capital projects. The cost of building two x-ray facilities was estimated to be well over that budget,” Polster says.

In addition, customers the FTC had cited as interested in X-ray may not have been as keen about the business model as the commission believed.— Elizabeth Hollis