Almost a Done Deal: J&J and Synthes Boards Approve Merger

Johnson & Johnson (J&J) has finalized its blockbuster deal orthopedic company Synthes for $21.3 billion in cash and stock. The deal is one of the biggest ever in the medical device industry

New Brunswick, N.J.-based Johnson & Johnson is offering 159 Swiss francs ($181.30) a share for Switzerland-based Synthes, which manufactures bone implants and surgical tools, and specializes in treatments for trauma. Both companies’ boards have unanimously approved the transaction, and a group of shareholders, led by the Synthes founder and chairman, Hansjörg Wyss, and other directors, have said they will support the merger.

“It’s a pretty fair price,” Lisa Bedell Clive, an analyst at Sanford C. Bernstein in London told The New York Times. “For JNJ, it’s a great deal. Trauma is one of the few medtech markets where they haven’t had a top-three business.”

“Orthopedics is a large and growing $37 billion global market andrepresents an important growth driver for Johnson & Johnson,” William C. Weldon, head of Johnson & Johnson, said in the 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.

J&J’s DePuy Companies division is home of the healthcare giant’s orthopedic products.

With this acquisition, Johnson & Johnson will be combining the second- and third-largest businesses for spine-related implants in the world, which could draw the attention of regulators and require a divestment.

“We don’t believe that there will be any required divestitures,” Alex Gorsky, vice chairman for Johnson & Johnson, said during a conference call, “but if there are, we don’t think they will material-impact the transaction.”

According to Rick Wise, medical device market analyst for Boston, Mass.-based Leerink Swann, Synthes should help extend J&J’s reach within orthopedics from both a product offering and a geographic perspective—and there could be product and technology synergies that could reach more broadly across J&J’s portfolio of companies. Wise called the marriage “a strong strategic fit.”

“Synthes brings to J&J a market-leading position in trauma and craniomaxillofacial—two areas within ortho where JNJ has minimal presence,” Wise wrote in an investor email. “The trauma segment is one of the last remaining, faster growth sub-segments within the ortho industry, and we estimate the trauma segment is growing at a high-single-digit rate versus approximately 1 percent growth for hips and knees.”

He also noted that Synthes also brings a “highly complementary” spine business that could create a market-leading player behind Medtronic, which has about 50 percent overall spine market share. A more consolidated industry position in both the trauma and spine market could provide J&J/Synthes with additional leverage (e.g., pricing, bundling opportunities, stronger negotiating power with hospitals) and a strengthened overall orthopedic market position going forward.