Johnson & Johnson Will Buy DePuy for $3.5 Billion; Roche Sells 84% Stake
Bloomberg News
July 21, 1998, 12:08 p.m. ET
Johnson & Johnson to Buy DePuy; Roche to Sell Stake (Update7)
(Adds details on spinal implants in 7th paragraph.)
New Brunswick, New Jersey, July 21 (Bloomberg) -- Johnson &
Johnson agreed to buy DePuy Inc., the world's second-largest
maker of spinal implants, for $3.5 billion in cash to bolster its
orthopedics-products business.
Johnson & Johnson will pay $2.9 billion to Roche Holding AG
for its 84 percent stake in DePuy. Johnson & Johnson, the world's
fifth-largest drug company, will offer $35 a share for the rest
of Warsaw, Indiana-based DePuy.
The addition of DePuy, founded in 1895, will make Johnson &
Johnson one of the world's biggest companies in the $9 billion
orthopedic-products business and give it an edge in the fast-
growing spinal-implants market. Roche, meanwhile, gets cash to
expand its main drug and diagnostics businesses and cut debt.
''This is a very good move for Johnson & Johnson, because
it's a major strengthening of its existing orthopedics
business,'' said analyst Birgit Kulhoff at Bank Sarasin.
DePuy rose 3 1/16 to 34 9/16 in midday trading. Johnson &
Johnson fell 1 to 76 1/8. Roche non-voting shares rose 415 francs
to 16,115 francs in Swiss trading.
Global sales of spinal implants, at about $200 million now,
are expected to rise faster than other medical devices. Analysts
have estimated growth rates of as much as 70 percent in the years
ahead. Sofamor Danek Group Inc. is the top spinal-implant maker.
One of DePuy's products is a titanium mesh cage, which is a
threaded metal column inserted between vertebrae when an injured
disk is removed. The cage is used in lower-back surgeries, about
150,000 of which were performed in the U.S. last year.
New Brunswick, New Jersey-based Johnson & Johnson said the
purchase will give it annual orthopedics revenue of $1.4 billion.
The maker of Band-Aids and Tylenol had revenue of $22.6 billion
last year, while DePuy's sales were $770 million.
Basel, Switzerland-based Roche, the world's 11th-biggest
drugmaker and No. 1 diagnostics company, bought DePuy in 1997
with its $10.2 billion purchase of Corange Ltd.
Strategy
Johnson & Johnson's strategy takes it in the opposite
direction to some of its U.S. rivals.
Pfizer Inc., the maker of impotence drug Viagra, is selling
its medical-devices businesses to focus on its more profitable
drug activities. Last month it agreed to sell its Schneider
device unit to Boston Scientific Corp. for $2.1 billion.
Eli Lilly & Co., the maker of antidepressant Prozac, opted
out of medical devices in 1994 as it spun off Guidant Corp. The
company is now one of Johnson & Johnson's main competitors in
devices such as stents, which doctors use to keep a patient's
arteries open.
The DePuy purchase is ''a very important strategic addition
to our worldwide orthopedic business,'' Johnson & Johnson
Chairman Ralph Larsen said in a statement.
The transaction comes amid consolidation in the global
health-care and pharmaceuticals industry.
Medical-devices makers are combining as governments attempt
to cut health spending. Switzerland's Sulzer Medica AG, the
fourth-biggest maker of artificial hip joints, last month said it
is seeking a buyer for its pacemaker unit after buying U.S.
spinal-implant maker Spine-Tech for $595 million.
DePuy Chairman and Chief Executive James Lent, a former
Johnson & Johnson executive, has overseen acquisitions that made
DePuy the world's fifth-largest producer of artificial joints.
DePuy said in March it will buy AcroMed Corp., which makes rods
used in spinal implants, for about $325 million.
DePuy sold shares to the public in 1996. It was founded by
Revra DePuy, and sells orthopedics products under trademarks such
as ACE, OrthoTech, and DePuy.
Roche
Roche said at the time of the Corange purchase it wouldn't
integrate DePuy.
''This is excellent news for Roche,'' said Beat Buob, who
manages 650 million Swiss francs ($433 million) at Julius Baer
Asset Management and rates shares of Swiss drugmakers
''overweight.'' ''While the sale was expected, the price is much
higher than I expected.''
Roche Chief Executive Franz Humer said company has no
immediate plans to use the cash it will receive for acquisitions.
''It certainly will reduce our debt, or we'll be able to
invest in financial markets more profitably,'' he said. On
acquisitions, the company will ''look at opportunities when they
arise,'' he said.
Roche earlier warned that the Corange purchase, which
included German diagnostics company Boehringer Mannheim GmbH,
might dilute 1998 profit. That's because Roche would start
writing down goodwill associated with the acquisition and it used
cash for the purchase that previously generated income to
complement its profit from making drugs.
''We looked much closer at what's happening in this industry
after the takeover, and the Johnson & Johnson offer came at the
right time,'' said Humer.
Johnson & Johnson was advised by Credit Suisse First Boston.
Roche, which routinely makes purchases without advisers, wasn't
advised by any investment bank.
The transaction must be approved by U.S. and European
regulators.
--Aimee Sullivan in the Princeton newsroom (609) 279-4042 and |
