Health products giant Johnson & Johnson said Wednesday it will buy U.S.-Swiss medical device maker Synthes Inc. for $21.3 billion, greatly increasing its share of the market for surgical trauma equipment and orthopedic implants.
J&J's largest ever deal will see the New Jersey-based company offer 159 Swiss francs in cash and stock for each Synthes share. That is a 22 percent premium on the April 14 share price, the day before reports first claimed Synthes was considering a takeover.
Synthes is based in West Chester, Pennsylvania, but has its global headquarters in Solothurn, Switzerland. Last year it had global sales of $3.69 billion, including $2.15 billion in North America.
"Orthopedics is a large and growing $37 billion global market and represents an important growth driver for Johnson & Johnson," CEO Bill Weldon said in a statement.
J&J said Synthes would complement its own DePuy orthopedics portfolio to address what it called "significant market trends."
These include aging populations and increased rates of obesity, both of which result in greater demand to treat joint disease, it said. J&J predicts emerging markets will grow 2-3 times faster than those in developed countries, offering further opportunities to reach patients in populous nations such as China, India and Brazil.
Analysts at Zuercher Kantonalbank said the purchase price was at the lower end of their predictions, but didn't expect another bidder to jump in at the last moment.
Investors appeared cautious about the deal, which still requires regulatory approval and isn't expected to close until the first half of 2012. Ratings agency Moody's revised its outlook for J&J.
"Despite the benefits of acquiring Synthes, J&J is incurring new debt during a period of increased operating challenges including product recalls, placing pressure on the Aaa credit rating," stated Michael Levesque, Moody's senior vice president.
Shares in Synthes closed 0.1 percent higher at 146.60 francs on the Zurich exchange.
J&J made clear that it doesn't expect major cost savings or job cuts to result from the combination of Synthes and DePuy.
"We do not foresee significant headcount reductions," said Alex Gorsky, vice chairman of J&J's executive committee. "We see this as much more about growth."
The sale of Synthes would make its multibillionaire chairman, Hansjoerg Wyss, the second-richest man in affluent Switzerland after Swedish-born Ikea founder Ingvar Kamprad.
Wyss, a graduate of Harvard, owns a 40-percent share of the company, and his family's trust owns a further 8 percent.
"I am very pleased and excited that my life's work will continue as part of Johnson & Johnson," the 75-year-old said in a statement.
Synthes pleaded guilty last year to a felony and dozens of misdemeanor crimes over unauthorized testing of its bone cement on spinal surgery patients, even though the cement was approved only for use in the arm. Three patients died on the operating table.
Synthes and subsidiary Norian Corp. performed the tests from 2002 to 2004. The companies agreed to pay $23 million in fines.
Johnson & Johnson, meanwhile, has suffered repeated product recalls, resulting in the yearlong closure of a nonprescription medicine factory in Fort Washington, Pennsylvania.
J&J said it wouldn't allow the takeover of Synthes to divert attention from its efforts to meet regulator demands.
The company's shares were down 0.7 percent at $64.47 on the New York Stock Exchange.