Only a short time after we revealed in Orthopaedic Business News and Medical Industry Week that talks were under way with regards to a possible takeover of Synthes, the Swiss orthopaedic manufacturer, Johnson & Johnson looks to have sealed the deal with an agreed offer that values Synthes at US$21.3 billion. Although the terms of the offer – consisting of cash and J&J shares – has surprised many in the media overall the impression is that the US company has managed to secure a reasonable deal for a prized asset.
The Boards of Directors of J&J and Synthes have each approved the transaction, and also has the notable backing of Dr Hansjoerg Wyss, Synthes founder and Chairman of the Board. Collectively, J&J already has acceptances of its offer from parties representing more than 33 per cent of Synthes share capital. That puts the likelihood of a competing offer – like what happened when it tried a major deal in cardiovascular markets and lost out to Boston Scientific in the battle for Guidant – highly unlikely. Not too many have the deep pockets to outbid J&J.
J&J’s move will make the combined Synthes/DePuy business the largest component within J&J’s Medical Devices and Diagnostics segment of Johnson & Johnson. Synthes’ expertise is in trauma, spine, cranio-maxillofacial and power tools, whilst DePuy offers a broad range of products across the orthopaedic and neurological care markets.
There’s still plenty of work for J&J to sort out before it can start celebrating its title as the world’s largest orthopaedic group, replacing Zimmer at the top of the pile in the process. The deal isn’t expected to be completed until at least the second quarter of 2012 and will need regulatory approvals in both the US and Europe, and certain other jurisdictions. Whilst Synthes isn’t technically registered in Switzerland – so isn’t subject to some rather complex rules in mergers and acquisitions, J&J may still be required to sell some of its assets, particularly in the area of trauma products. J&J could also have an additional headache in accommodating the AO Founding, the Swiss non-profit organisation that works exclusively for Synthes in the areas of R&D and has played a major role in its development over the last few decades. For its part, the AO Foundation seem unconcerned about the development saying that any deal would cause “no initial change” to its relationship with Synthes.
One interesting side note to these developments is the future of the UK orthopaedics company, Smith & Nephew, which has long been touted as a DePuy target. Clearly, this deal puts an end to that particularly favourite form of speculation but could that leave the door open to alternative bidders for S&N that may have been scared off from going for the UK comapny for fear of taking on the cash-rich might of J&J? Or could S&N use the deal as an opportunity and acquire some Synthes assets? The Synthes/DePuy deal suddenly marks the beginning of a new game of musical chairs to battled out over the next 12 months. The orthopaedics industry in 2012 has suddenly got that little bit more interesting.