FTC Alleges Steris-Synergy Health Merger is Unsterile

FTC stops Steris MergerThe FTC has moved to challenge the proposed $1.9 billion merger between Mentor, Ohio-based Steris Corp. and the United Kingdom’s Synergy Health PLC, which would see Steris acquire Synergy as part of the deal.  According to the FTC’s administrative complaint, both Steris and Synergy provide contract sterilization services for companies that need to ensure their products are free from unwanted microorganisms before they reach customers.  For example, implanted medical devices and human tissue products, are required to meet significant requirements as it relates to sterilization.  For many companies, in-house sterilization is impracticable. Instead, those companies bring their products to sterilization service facilities.  The FTC has said the merger would violate the antitrust laws by significantly reducing future competition in regional markets for sterilization of products using radiation, particularly gamma or x-ray radiation.  In conjunction with the administrative complaint, the FTC has moved to block the merger in federal court.

The FTC alleges that in today’s sterilization market, gamma radiation, is considered the only feasible method of sterilizing large volumes of dense and heterogeneously packaged products. Only Steris and one other company, Sterigenics, provide contract gamma sterilization services in the United States, according to the complaint. At the time the proposed merger was announced, Synergy was implementing a strategy to open new plants that would provide contract x-ray sterilization services. These services – which currently are not available in the United States – would provide a competitive alternative to gamma radiation, according to the complaint.  The FTC says it is unlikely that new competitors in the market for contract radiation sterilization services would replicate the competition that would be eliminated by the merger. The Commission alleges that the challenged acquisition would eliminate likely future competition between Steris’s gamma sterilization facilities and Synergy’s planned x-ray sterilization facilities in the United States, thus depriving customers of an alternative sterilization service and additional competition.

Both Steris and Synergy have announced that they intend to contest the FTC’s challenge to their proposed merger, but Steris recently announced that it would delay a shareholder vote to approve the merger until September 2015.  While the Steris shareholder vote has been put on hold, both companies maintain their merger is pro-competitive and should be a strategic fit for both businesses.  “It is unfortunate that we have come to this point with a transaction as strategic and geographically complimentary as ours,” said Walt Rosebrough, president and CEO of Steris Corporation, in a press release.  “We have worked diligently to address the FTC’s concerns and to avoid litigation, but we will now focus our efforts on prevailing in court.”  Richard Steves, CEO of Synergy added, “We have strong customer support for the transaction and we are confident that the combination of STERIS and Synergy is pro-competitive and that the court will reject the FTC’s request for an injunction once the facts of the combination are fully understood.”

While the FTC’s fight with Synergy and Steris is just beginning, the major question as it relates to the merger is whether Steris would bring Synergy’s new x-ray based sterilization to market.  The FTC has said it isn’t so sure that would happen under the merger.  “Customers have also expressed concern that Steris likely has significantly less incentive to bring competitive X-ray sterilization services to the United States than an independent Synergy,” the complaint stated.  So, is the FTC right?  Would the merger keep Synergy’s new technology from being introduced in the U.S.?  We will have to wait until October 2015 when the administrative trial begins to answer these questions.