Johnson & Johnson (JNJ:US) said its $19.7 billion purchase of Synthes Inc. (SYST), the largest acquisition in the company’s 126-year history, will add 3 cents to 5 cents a share to 2012 earnings as it gained U.S. clearance for the deal.
J&J, the world’s biggest health-care products company, entered into accelerated buyback agreements for about $12.9 billion in shares with Goldman Sachs Group Inc. and JPMorgan Chase & Co. to help pay for the cash-and-stock acquisition, the New Brunswick, New Jersey-based company said yesterday in a statement. J&J previously said the deal would cut earnings by 22 cents a share.
The company is buying the shares through its Ireland-based Janssen Pharmaceutical unit, which may enable it to use cash that has accumulated outside of the U.S., said Derrick Sung, a Sanford C. Bernstein & Co. analyst in New York. The repurchases will help J&J finance the transaction in an efficient manner to enhance shareholder value, J&J said in the statement.
“The deal will allow J&J to have a dominant competitive positioning across all of the major markets, an advantage that we think will become critical as we move into the new era of health-care cost containment,” Sung wrote in a note to investors today. “The ability to use outside the U.S. cash to repurchase common stock, if this is the case, appears to be a brilliant tax maneuver and a great way to use the difficult-to- repatriate” money.
J&J rose 2.2 percent to $64.45 at the close in New York. The shares have lost 3.2 percent in the past 12 months.
J&J will take a $1.1 billion after-tax charge during the rest of 2012 for special items related to the acquisition, including restructuring and integration costs, the company said. In 2013, the first full year of joint operations, the acquisition is expected to add 10 cents to 15 cents a share to earnings (JNJ:US) excluding certain items.
Synthes shareholders will receive 55.65 Swiss francs and about 1.72 shares of J&J stock for each share they own based on tomorrow’s expected closing. The shares of West Chester, Pennsylvania-based Synthes trade in Switzerland.
The purchase price was estimated at $21.3 billion on April 27, 2011, when J&J announced the deal for Synthes, a device company that sells screws, plates, bone grafts and other products that treat trauma victims.
J&J won European Union approval for the purchase April 19, after agreeing to sell its DePuy Orthopaedics Trauma business to Biomet Inc. for $280 million to allay antitrust concerns.
The company said yesterday it received U.S. regulatory approval for the acquisition. The Federal Trade Commission said on June 11 that J&J had agreed to sell to Biomet a system for surgically treating wrist fractures as part of gaining clearance for the deal.
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