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Medical merger

April 28, 2011

Johnson & Johnson is buying Swiss orthopedic implant maker Synthes at a premium. The deal will give the US group a chance to expand, putting it in the ranks of top competitors in the orthopedic devices market.

An operation
Synthes makes orthopedic trauma implantsImage: AP

In a move expected to change the landscape of the pharmaceuticals and health-care industry, America's Johnson & Johnson (J&J) will buy Swiss orthopedic device manufacturer Synthes.

The merger has been on the cards since April 18, when talks between the two companies were announced. J&J will purchase Synthes for 19 billion Swiss francs ($21.6 billion), with plans to expand its medical devices and diagnostics business segment.

The deal calls for each share of Synthes common stock to be replaced with 55.65 francs in cash and 103.35 francs in J&J common stock - an 8.5 percent premium over Tuesday's closing share price for Synthes.

Synthes makes orthopedic implants like artificial disc spines. The two companies will be able to focus on rising demand for products aimed at aging populations, joint disease from increasing obesity rates and growing demand from emerging markets, according to a J&J press release.

"Orthopedics is a large and growing $37 billion global market and represents an important growth driver for Johnson & Johnson," company CEO Bill Weldon said. "Synthes is widely respected for its innovative high-quality products, world-class R&D [research and development] capabilities, its commitment to education, the highest standards of service, and extensive global footprint."

A person shops for medication in Nigeria
Johnson & Johnson is counting on growth in emerging marketsImage: AP

Leading company

Aparna Krishnan, a London-based health-care and pharmaceuticals analyst with IHS Global Insight, said the deal will have "a huge impact on what the medical devices industry looks like."

The purchase will put J&J at the forefront of the industry along with GE Healthcare, Boston Scientific, Medtronic and Siemens Healthcare.

"This acquisition is going to have an impact on what the leader board looks like, literally," she told Deutsche Welle. "Medical devices has done very well in the recent past for J&J. It's one of the segments that was one of the highest contributors to overall sales. So, in that sense this acquisition boosts their potential sales growth in the short term."

Krishnan added that J&J's corporate strategy has been a three-pronged one with sales coming from medical devices, consumer health products and pharmaceuticals. The acquisition of Synthes is meant to strengthen its medical devices segment.

"If there is upheaval in one particular industry, they are cushioned against it because the other industries perform and they are able to keep up their figures," she said.

The merger is subject to US and Swiss regulatory laws, and obtaining the necessary clearances will push the actual transaction past the end of this year, according to Krishnan.

Synthes' founder, CEO and largest shareholder Hansjoerg Wyss approved the merger, and analysts do not expect counter-bids from rival companies.

Author: Gerhard Schneibel
Editor: Nicole Goebel