Bloomberg News

Johnson & Johnson Bid for Synthes Faces In-Depth EU Probe

November 07, 2011

(Updates shares in the eighth and ninth paragraphs.)

Nov. 4 (Bloomberg) -- Johnson & Johnson faces an expanded European Union probe into its $19.2 billion bid for Synthes Inc., which would make the company the leader in the $5.5 billion market for devices that treat trauma victims.

“The proposed acquisition would remove a competitor from some markets which are already concentrated,” Joaquin Almunia, the EU’s antitrust chief, said in a statement today. This could reduce innovation and choice for patients, triggering “potentially an increase in prices for the orthopedic medical devices concerned.”

J&J, the world’s second-largest seller of health products, agreed in April to buy Synthes, a maker of medical tools to treat damaged bones, in the biggest purchase in the New Brunswick, New Jersey-based company’s 125-year history.

Regulators set a new deadline of March 19 to rule on the deal and can block the purchase or require companies to sell off units or change the way they do business to eliminate any competition concerns. The EU blocked General Electric Co. and Honeywell International Inc.’s $47 billion merger in 2001 after it had been approved by U.S. authorities.

The EU said its initial probe showed that the transaction would combine two of Europe’s biggest suppliers of spine devices. It would strengthen Synthes as the largest producer of trauma and devices for facial and skull fractures and J&J as the biggest maker of shoulder-replacement devices.

‘Customary’ Review

The EU in-depth investigation is “customary for transactions of this size and scope,” Bill Price, a spokesman for J&J, said in an e-mailed statement yesterday. “We expect the transaction to close in the first half of 2012.”

Synthes also expected the review and will cooperate with the commission, the West Chester, Pennsylvania-based company said today.

Johnson & Johnson, the world’s second-biggest seller of medical products after Pfizer Inc., fell 0.3 percent to $64.12 at the close of New York trading.

Synthes declined 0.1 percent to 148.70 francs in Zurich.

J&J and Synthes may be pressed by regulators to divest part of their spine devices business as the merger would give the company 30 percent of the market, making it the second-largest behind Medtronic Inc, Lisa Clive, an analyst with Sanford C. Bernstein Ltd., said in an interview today.

“It would have been surprising for an acquisition of this size to go through right away,” Clive said. Any divestments would depend on regulators’ views on pricing in the devices market.

Almunia, the EU’s competition commissioner, said in April that antitrust regulators’ moves to increase competition for medicines can bolster health care provision in Europe and reduce prices that governments pay for vital drugs.

--With assistance from Alex Nussbaum in New York, Allison Connolly in Frankfurt and Jim Brunsden in Brussels. Editors: Anthony Aarons, Kristen Hallam

To contact the reporter on this story: Aoife White in Brussels at awhite62@bloomberg.net

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net


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