Zurich: Johnson & Johnson is to buy Swiss medical devices maker Synthes Inc for 19 billion Swiss francs ($21.30 billion) in its largest ever buy, boosting its orthopaedic business and reshaping the wider industry.
The US healthcare group will pay 159 Swiss francs in cash and stock for each Synthes share, the two companies said on Wednesday. That is a premium of 8.5% over Synthes’s closing share price on Tuesday.
A deal had been anticipated after Synthes said on 18 April it was in talks with J&J.
The acquisition, which is expected to close in the first half of 2012, has the backing of both the Synthes and J&J boards and will give J&J a leading position in equipment to treat trauma.
Synthes, which posted sales of $3.7 billion in 2010, makes nails, screws and plates to fix broken bones, as well as artificial spine discs.
“Orthopaedics is a large and growing $37 billion global market and represents an important growth driver for Johnson & Johnson,” said Bill Weldon, J&J’s chairman and chief executive.
The deal is expected to have a modestly dilutive impact on J&J’s adjusted earnings per share for 2012.
Crucially, the deal has the backing of Hansjoerg Wyss, who holds 40% of Synthes directly and another 8 percent through family trusts, and was seen as key to any deal going through.
“It is surprising the deal has been struck between cash and shares. The market consensus, and our view, was it would be all cash, so the quality of the take-out is slightly lower than we anticipated,” said Morgan Stanley analyst Michael Jungling.
“The take-out valuation doesn’t seem particularly demanding. It’s a scarce asset, and the acquisition makes J&J the number one in the world in orthopaedics,” Jungling said.
Jefferies analyst Ingeborg Oie said the acquisition appeared to be in line with previous deals given that Synthes has historically commanded a premium of about 10% in the sector.
Synthes shares were trading 2% firmer at 01:00 pm at 149.40 francs, outperforming a near flat European healthcare index.
Counter bid unlikely
Under the deal, each share of Synthes common stock will be exchanged for 55.65 francs in cash and 103.35 francs in J&J common stock, the groups said.
Synthes and J&J also said the transaction had an estimated net acquisition cost of $19.3 billion as of the close of business on 26 April based on Synthes approximately 119.5 million fully diluted shares outstanding and approximately $2 billion in cash on hand as of signing.
The medical device sector has been consolidating as companies seek economies of scale and new business areas, but analysts doubt anyone will want to take on J&J with a counter-bid for Synthes.
There had previously been speculation J&J, which had cash and short-term investments of $27.7 billion at the end of 2010, was interested in buying British orthopaedics company Smith & Nephew Plc.
Medical devices and diagnostics accounted for 40% of J&J’s $61.6 billion in 2010 sales, but the business has been hit by competition and recalls in its hip and knee replacement unit.
J&J owns around 250 separate companies under its corporate umbrella. The group attempted to buy US medical device maker Guidant, which specialized in cardiovascular products, several years ago, but was outbid by Boston Scientific Corp.