Johnson & Johnson (JNJ) is all set to complete its acquisition of Synthes, Inc. on June 14, 2012. The company, which received Federal Trade Commission (FTC) approval recently, will be acquiring Synthes for a total purchase price of approximately $19.7 billion in cash and stock.
For each share of Synthes, the shareholder will be entitled to receive CHF 55.65 in cash and 1.7170 shares of Johnson & Johnson common stock.
Antitrust approval from the European Commission was granted on April 19, 2012. Meanwhile, the FTC asked Johnson & Johnson to sell its system for treating distal radius wrist fractures. Johnson & Johnson said that it will be selling its entire trauma portfolio, including DVR, to Biomet. The sale is scheduled to go through later this month.
Johnson & Johnson announced that its wholly owned Irish subsidiary, Janssen Pharmaceutical, has signed a $12.9 billion accelerated share repurchase (ASR) programs with two investment bankers. The shares purchased under the ASR agreements, along with cash on hand from Janssen Pharmaceutical, will be used towards the purchase consideration for the Synthes deal.
With the company announcing the share buyback program and the financial structure for the deal, Johnson & Johnson now expects the Synthes acquisition to be accretive to earnings instead of dilutive as expected earlier. Earlier, the company had said that it expects the deal to be dilutive by 22 cents per share in 2012.
However, with the financial structure in place, the company now expects the acquisition to boost 2012 adjusted earnings by 3-5 cents per share. Meanwhile, 2013 earnings are expected to be boosted by 10-15 cents per share due to the acquisition.
Johnson & Johnson expects to incur charges of $1.1 billion in 2012 related to the acquisition. We expect to get more details when the company reports second quarter results on July 17, 2012. At that time, we believe the company will update its 2012 earnings guidance of $5.07 – $5.17 per share. The Zacks Consensus Estimate for 2012 and 2013 is $5.11 and $5.43 per share, respectively.
Through the Synthes acquisition, Johnson & Johnson is looking to strengthen its medical device portfolio. The products of both companies should complement each other.
Synthes has a strong global footprint with manufacturing facilities in the US, Europe and China and a solid pipeline of new products and technologies. Synthes’ global sales came in at $3.97 billion in 2011, with US sales coming in at $2.14 billion.
We currently have a Neutral recommendation on Johnson & Johnson, which carries a Zacks #3 Rank (short-term Hold rating).
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