Wednesday, April 20, 2011

Synthes Confirms Takeover Talks With Johnson & Johnson as Shares Increase

By Allison Connolly and Alex Nussbaum ( Bloomberg)- Apr 18, 2011 4:25 PM ET  ( exerpts from this story)
Synthes Inc. (SYST) said it’s in talks about a possible takeover by Johnson & Johnson (JNJ), potentially the biggest deal in J&J’s 125-year history as it seeks to recover from pulling more than 50 products off the market since the start of 2010.
Synthes would give New Brunswick, New Jersey-based J&J a line of hip screws, surgical power tools and instruments to treat spinal and soft-tissue injuries that had $3.69 billion in 2010 sales, boosting the U.S. company’s share of the market for trauma care….“It’s the chance to become the market leader in trauma,” which has more long-term growth and profit margin potential than replacement hips and knees.
A takeover would burden J&J, the world’s second-biggest maker of health-care products after Pfizer Inc. (PFE), with another business grappling with recalls and charges of pushing dangerous products. Chief Executive Officer William C. Weldon is already managing recalls, a U.S. probe of J&J’s consumer manufacturing and more than 600 lawsuits tied to faulty artificial hips.
You could make a fair argument it’s not the right time to expand,” said Mark Bussard, an analyst at Baltimore-based T. Rowe Price Group Inc., which held 21 million J&J shares in December, before the talks were announced today. “If I were on their board, I might be asking, ‘Why don’t we spend the next year getting our house in order, and then talk about a $20 billion acquisition?’”
J&J, the world’s biggest maker of artificial hips, reported a drop in joint-implant revenue in last year’s fourth quarter, hurt by a decline in medical procedures and a recall of 93,000 artificial hips.
Synthes recalled spinal implants in 2009 after reports that the Synex II Central Body components had failed in six people, leading to pain and loss of height for some, the company said in a Nov. 4, 2009, statement. The FDA said the devices could pose an “imminent hazard” to patients’ health.
The company had produced “thousands” of Synex implants that caused no problems, Gilgian Eisner, a spokesman for Synthes in Solothurn, Switzerland, said in a phone interview yesterday. No deaths were reported and the recall didn’t require the removal of devices that were already implanted if they didn’t prompt complaints, he said. The company is developing a replacement for the device.
To be sure, J&J and Synthes aren’t the only device makers to pull products and face lawsuits. Joint-implant makers Stryker Corp. (SYK) and Zimmer Holdings Inc. (ZMH) and Medtronic Inc. (MDT), the biggest maker of defibrillators and pacemakers, also faced recalls in recent years, the University of Michigan’s Gordon said.
An acquisition of Synthes would allow J&J to double its market share in spinal care to 30 percent, making it the second- biggest behind Medtronic, Carla Baenziger, an analyst with Bank Vontobel AG in Zurich, wrote in a note. J&J would also become the market leader in trauma with market share of about 57 percent, up from 5 percent now, she said.
Synthes’s headquarters remain in the U.S., while its stock is traded in Zurich. Its European headquarters are in Solothurn. The company generated $3.69 billion in revenue in 2010, an increase of 77 percent in five years. Its net income more than doubled in that period, to $907.7 million last year

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