FTC Redoubles Efforts to Block Steris Acquisition of Synergy

The Federal Trade Commission continues to try and put the brakes on Mentor, Ohio-based Steris’ proposed buyout of Synergy Health, claiming Synergy’s proposed strategy to use X-ray to sterilize medical products was abandoned in the wake of a commission investigation into the deal.

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.

Steris and rival Sterigenics currently are the sole contract providers of gamma radiation services in the U.S.

Using gamma is the only feasible method for “sterilizing large volumes of dense and heterogeneously packaged products,” the FTC says.

Synergy’s X-ray method could prove highly disruptive to this market and perhaps served as a temptation to Steris, the commission says.

The FTC alleges that the acquisition would violate antitrust laws by significantly reducing future competition in the gamma and X-ray radiation markets.

The commission has sought a preliminary injunction in the U.S. District Court for the Northern District of Ohio.

While the companies maintain that using X-ray was not a sound financial strategy, the FTC disagrees.

The commission points to encouraging board reports and presentations, positive communications between senior executives and other Synergy actions that demonstrate the company’s ongoing commitment to X-ray prior to the FTC’s probe.

In fact, the device community has seen the appeal of using X-ray. “Potential customers continue to express interest in Synergy’s U.S. x-ray business,” court documents say.

“Indeed the ‘big fish’ of medical device customers, Johnson & Johnson, is prepared to move its Surgicel product to x-ray, ‘paving the way for further conversions.’” Zimmer-Biomet has also expressed interest in learning more about the method.

“But for the FTC investigation, Synergy would be promoting x-ray for the United States, preparing to advertise the anticipated conversion of J&J’s Surgicel to x-ray, and nearing conversions of other products for other customers, all in anticipation of entry as early 2016,” the commission asserts.

Companies Respond

Steris and Synergy have rebuffed the FTC on all of charges, asserting that there were a number of documented problems with the X-ray strategy — problems that the commission maintains could be fixed.

One issue is that the business model would fail to meet financial requirements and could pose an unusually high risk to Synergy, the companies say.

They hold that J&J’s interest in X-ray for Surgicel was noncommittal and note that J&J manufactures and sterilizes the product outside the continental U.S.

“[T]here is no evidence to suggest that J&J intends to relocate sterilization of Surgicel away from where it is manufactured,” the firms say.

As far as the FTC investigation, the companies deny that the probe was the impetus for the project’s demise.

Synergy would not have been able to enter the U.S. with its X-ray method within a reasonable timeframe, regardless of the merger, they say. — Elizabeth Hollis