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Johnson & Johnson: Synthes deal closes Thursday

Johnson & Johnson: Synthes deal closes Thursday

June 13th, 2012 by LINDA A. JOHNSON, AP Business Writer in News

TRENTON, N.J. (AP) - Healthcare giant Johnson & Johnson said Tuesday that it will complete its $19.7 billion purchase of Synthes on Thursday - a deal J&J hopes will give it a dominant position in the growing orthopedic surgery market.

Closing the deal, the company's biggest ever, was one of the top priorities for new CEO Alex Gorsky, who just moved up to the top spot in April after predecessor Bill Weldon retired.

In interview in April, Gorsky said his goal is to expand Synthes, which makes surgical trauma equipment and orthopedic implants, especially in emerging markets such as Russia, China and India. Those are places where patients may get bones and joints fixed after accidents but rarely can afford expensive elective surgeries such as hip and knee replacements.

Orthopedics treatments in general are a fast-growing area, given the aging worldwide population and the wear and tear that obesity puts on bones. Increasing health spending by governments and the rising middle class in emerging markets are also fueling growth.

The trauma business until now has not been a strength for J&J, unlike its artificial joints. But even that business has been hurt by mounting lawsuits and the company having to pull one of its DePuy hip replacement systems from the market due to patients complaining of premature wear and pain.

In order to win approval from antitrust regulators concerned about maintaining market competition and choices for patients and doctors, J&J, based in New Brunswick, N.J., agreed to divest some assets.

On Monday, it won Federal Trade Commission clearance after previously agreeing to sell the trauma product business of its DePuy Orthopaedics subsidiary to Biomet Inc. That divestiture is expected to close in the second quarter.

European Union regulators approved the Synthes deal in April, also predicated on that divestiture. Synthes' U.S. offices are located in West Chester, Pennsylvania, but the company's global headquarters is in Solothurn, Switzerland.

The cash-and-stock deal was priced at $21.3 billion when it was announced in April 2011, but that declined with shifting share prices.

Synthes shareholders are to receive 1.717 shares of J&J stock and 55.65 Swiss Franc ($57.95) for each of their shares, assuming the deal closes as scheduled on Thursday. They approved the deal at a special meeting in December.

Johnson & Johnson said it expects the acquisition to add to its adjusted earnings per share, those excluding one-time charges, by about 3 cents to 5 cents this year. But J&J said it expects to take after-tax charges of about $1.1 billion this year for restructuring, integration and other costs from the acquisition. Next year, it expects the acquisition to add to adjusted earnings per share by 10 cents to 15 cents.

Synthes reported sales of just under $4 billion and net income of $967 million last year.

Although Synthes is a medical device maker and that business is J&J's largest segment, the merger agreement calls for Synthes to become part of J&J's Janssen Pharmaceutical subsidiary, which makes prescription drugs.

Both J&J's prescription drugs and consumer health segments have had their revenue hurt in recent years by generic competition to blockbuster medicines and about 30 recalls of prescription and nonprescription drugs due to quality lapses.

Linda A. Johnson can be followed at -