Johnson & Johnson and Synthes Inc. Deal is Announced

Brittney Barrett  |

New Brunswick, New Jersey-based healthcare goliath, Johnson & Johnson Inc. (NYSE: JNJ) confirmed its plans to purchase Swiss medical-device maker Synthes Inc. (VTX: SYST) on Wednesday. The agreement, priced at $21.3 billion, is designed to help J&J expand its orthopedic-device business, which encountered some obstacles last year.

Rumors surrounding this deal began circulating several weeks ago but details were hard-to-come by. A Wall Street Journal article today claimed the final price of the cash-and-stock deal is not yet final and will not be until shortly before closing. The deal, the largest in J&J history, may not be finalized as long as a year.

Following the announcement, shares of J&J, which has been climbing since the rumors began, added an addition 0.45 percent.

Beneath the current terms laid out by the companies, Synthes shareholders will collect 55.65 Swiss francs in cash and CHF103.35 in J&J common stock for each share of Synthes. Currency conditions may adjust this number somewhat at the time of the deal.

Company heads at both J&J and Synthes expect the deal to close in the  first half of 2012 and don’t anticipate a major disruption in earnings.

In a statement on the deal, William Weldon, J&J’s Chief executive said, “Orthopedics is a large and growing $37 billion global market and represents an important growth driver for Johnson & Johnson. Synthes is widely respected for its innovative high-quality products, world-class R&D capabilities, its commitment to education, the highest standards of service, and extensive global footprint.”

Synthes is the biggest maker of devices for treatment of bone fractures and trauma. Synthes will provide J&J with hip screws, plates, surgical power tools and instruments intended for treatment of spinal and soft-tissue injuries. That part of their business brought in $3.69 billion in sales last year, and would help J&J to become the world leader in the area. Already, J&J is the leading producer of of artificial hip, but the fourth-quarter of last year was hard hit after the economy led to lower medical procedures and close to 100,000 hips were recalled.

The business of hip implants is about to get much bigger, or at least that would seem a sensible conclusion to reach as many baby boomers approach an age where such procedures become necessary. The business is not growing alongside demand thus far and Johnson & Johnson, already experts in the field, could benefit from the additional resources considerably through these years. Synthes will be enormously helpful in that capacity, already a major powerhouse in its own right. The combination of the two companies, coupled with a boom in the need for these devices, has the potential to be extremely beneficial to the company and its shareholders provided the deal goes smoothly.



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