May 19, 2024

DealBook: J.&J. Announces $21.3 Billion Deal With Synthes

Johnson Johnson said Wednesday that it had agreed to buy Synthes, the medical equipment maker, for $21.3 billion in cash and shares, one of the biggest deals ever in the healthcare sector.

Johnson Johnson is offering 159 Swiss francs per share of the Swiss-American company, which manufactures bone implants and surgical tools, and specializes in treatments for trauma. The bid is comprised of 55.65 francs in cash and 103.35 francs worth of Johnson Johnson common stock. It represents a 22 percent premium over the 130.60 francs that Synthes was trading at on April 14, before reports first emerged of the deal.

“It’s a pretty fair price,” said Lisa Bedell Clive, an analyst at Sanford C. Bernstein in London. “For J.J. it’s a great deal. Trauma is one of the few med-tech markets where they haven’t had a top-three business.”

Both companies’ boards have unanimously approved the transaction, and a group of shareholders, led by the Synthes founder and chairman Hansjoerg Wyss and other directors, have pledged to vote their shares in support of the deal, the companies said.

Mr. Wyss controls 47 percent of Synthes, a stake that will be worth slightly more than $10 billion when the deal closes. In the companies’ statement, he said he was pleased to see his “life’s work will continue as part of Johnson Johnson.”

His support for the deal, combined with the size of his stake, make it unlikely that shareholders pushing for a higher price would be able to block the bid.

Synthes will be merged with the Johnson Johnson unit DePuy Companies to become the group’s largest medical devices business, specializing in orthopedics.

“Orthopedics is a large and growing $37 billion global market and represents an important growth driver for Johnson Johnson,” Bill Weldon, head of Johnson Johnson, said in the companies’ statement.

The deal, which will be Johnson Johnson’s largest ever, is expected to close in the first half of next year, pending the approval of regulators in the United States and Europe, as well as Synthes shareholders.

In acquiring Synthes, Johnson Johnson will be combining the second and third largest businesses for spine-related implants worldwide, which could draw regulators’ attention and force a divestment.

“Antitrust authorities look at this on a product line by product line basis,” Ms. Clive said. “If you look at the precedent of the cardiac market, it could happen that they’ll let this go untouched.”

She noted that Boston Scientific’s acquisition of the heart device maker Guidant in 2006 for about $27 billion — the conclusion of a bidding war against Johnson Johnson — had not led to any forced divestments.

It is set to have a “modestly dilutive impact” on Johnson Johnson’s earnings per share, the company said.

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