Medical Device Daily Executive Editor

Blackstone (New York) appears to have decided it will be a major player in orthopedics.

ReAble Therapeutics (Austin, Texas), whose controlling shareholder is The Blackstone Group, yesterday reported that it will acquireDJ Orthopedics (DJO; San Diego/Austin, Texas), a provider of products and services that promote musculoskeletal and vascular health, for $1.3 billion and the assumption of $300 million in DJO debt.

In May, Blackstone led a group of private equity firms it an offer to purchase orthopedics titan Biomet (Warsaw, Indiana) for $44 a share billion (Medical Device Daily, May 31, 2007), and then last month sweetened that offer to $46 a share, for a deal value of $11.4 billion, from a group of private equity firms (MDD, June, 14, 2007).

ReAble, focused on rehabilitation, pain management, physical therapy and orthopedics, will pay $50.25 a share for each outstanding share of DJO common stock, a premium of about 25% over DJO's average closing share price for the 30 trading days ended July 13.

An affiliate of The Blackstone Group is the controlling shareholder of ReAble and has committed to provide the equity needed to complete the transaction.

While the deal is being billed as creating a juggernaut in the non-operative orthopedic category, some are wondering if Blackstone is just pursuing an investment strategy without much real concern for building a consolidated presence in orthopedics.

ReAble, previously known as Encore Medical , was renamed after being purchased a year ago by a group led by Blackstone. The year before its acquisition, Encore had sales of $293.7 million and 1,300 employees.

DJO, with about 3,000 workers, reported a 44% rise in sales, to $413 million, in 2006. DJO last year acquired Aircast (Summit, New Jersey), a developer of cold therapy systems, fracture boots and other specialty products for about $290 million in cash (Medical Device Daily, April 11, 2006).

ReAble's most recent deal was the purchase of Iomed (Salt Lake City), a developer of drug delivery devices for pain management, for $22 million (May 21, 2007).

The transaction, subject to various closing conditions, is slated to close in 4Q07.

DJO may solicit superior proposals from third parties over the next 50 days, and if it develops such an offer, it would pay ReAble a break-up fee of $18.7 million.

DJO and ReAble provide complementary products in orthopedic rehabilitation and pain management, and said that, when combined, they will offer broad marketing through multiple sales channels.

Ken Davidson, CEO of ReAble said, "DJO and ReAble have established strong positions in the orthopedic and rehabilitation markets … . The resources of the combined company will allow us to develop even better and more innovative products, and to take care of more of the needs of more patients and caregivers than ever before. The strategic fit, both in the U.S. and overseas, is absolutely compelling."

Les Cross, president/CEO of DJO, said, "We believe that the value of this transaction appropriately recognizes DJO's leadership position in non-operative orthopedics … providing our stockholders with an immediate and substantial cash premium for their investment in DJO."

DJO specializes in rehabilitation and regeneration products for the non-operative orthopedic, spine and vascular markets, marketed under the Aircast, DonJoy and ProCar brands. It offers more than 700 rehabilitation products, including rigid knee braces, soft goods and pain management products, are used in the prevention of injury, in the treatment of chronic conditions and for recovery after surgery or injury.

Its regeneration products consist of bone growth stimulation devices used to treat non-union fractures and as an adjunct therapy after spinal fusion surgery. Its vascular systems products help prevent deep vein thrombosis and pulmonary embolism that can occur after orthopedic and other surgeries.

The company sells its products in the U.S. and in more than 70 other.

ReAble manufactures orthopedic devices used to treat musculoskeletal conditions resulting from degenerative diseases, deformities, traumatic events and sports-related injuries. Through its Orthopedic Rehabilitation Division, it distributes electrical stimulation and other orthopedic products. ReAble's Surgical Implant Division is a provider of reconstructive joint products and spinal implants.

The board of DJO and a committee of independent directors have approved the transaction and recommend that DJO stockholders approve the merger.

Wachovia Securities is acting as financial advisor and Latham & Watkins is acting as legal counsel to the DJO board.

Credit Suisse is acting as financial advisor and Simpson Thatcher & Bartlett is acting as legal advisor to ReAble and Blackstone in this transaction. Financing commitments have been provided by Credit Suisse and Bank of America.

Formation Capital (Alpharetta, Georgia) and JER Partners reported completing the acquisition of Genesis

In other deal activity: Formation Capital (Alpharetta, Georgia) and JER Partners (McLean, Virginia) reported completing their acquisition of Genesis HealthCare (GHC; Kennett Square, Pennsylvania) in a deal valued at about $2 billion.

GHC shareholders received $69.35 in cash for each share of GHC common stock that they held.

The deal was first disclosed in January (MDD, Jan. 17, 2007). "The Genesis portfolio represents a tremendous opportunity for JER and Formation to acquire a quality portfolio of skilled nursing facilities and assisted living residences and to serve the growing demand of elderly Americans for medical and long term care," said Cia Buckley, president of JER's U.S. Fund Business.

GHC is the fifth-largest provider of skilled nursing services in the U.S., with a portfolio of 220 skilled nursing and assisted living facilities totaling more than 26,000 beds primarily in the Mid-Atlantic and Northeast. In 2006, the GHC portfolio generated 48% of its revenues from Medicare and non-public payers and had occupancy of 91%.

JER Partners is the private equity investment arm of J.E. Robert Companies, a real estate investment management company. Formation Capital is a private equity firm in the senior housing and long-term care industry.