• Tuesday, April 19th, 2011

This past Friday, The Wall Street Journal reported that Johnson & Johnson (JNJ) was in talks to purchase Swiss-based Synthes for about $20 billion. If Synthes and JNJ’s DePuy were to combine, the resulting firm would be the world’s largest orthopedic company with annual orthopedic shipments of around $9.3 billion. In market share terms, the combined entity would have about 28% market share. The #2 and #3 companies would be Stryker at 14% and Zimmer at 13%.

While the regulators will, no doubt, be scrutinizing this transaction carefully should it move beyond the current talking stage, employees, customers and suppliers may well be wondering how such a combination would affect them. Interestingly enough, there is little overlap between the two companies.

As the following table illustrates, the two businesses fit together pretty well.

DePuy Synthes
Market Share Rank Market
Knee Recon 20.5% #2
Hip Recon 22.0 #2
Trauma 4.7 #4 49.3% #1
Spinal Implants 11.1 #2 10.9 #3
Extremities 20.3 #1
Overall 14.7% #1 13.0% #3

With such little overlap, for most employees the combination probably means a greater measure of job security.

Wall Street is initially praising the prospective transaction. Wells Fargo’s Larry Biegelsen said in a note to investors this morning: “We believe the deal appears to be quite reasonable priced at 5x TTM (trailing twelve month) sales and 12x TTM EBITDA relative to recent deals in the space, assuming the $20B equity value per WSJ (The Wall Street Journal), and taking into account growth prospects for trauma and spine segments.”

The talks between the two firms were characterized by news reports as “fragile.” Indeed this is absolutely a journey of a thousand miles for both firms with only a few tentative steps being taken so far. But, on paper, this combination is promising. Is Hans Wyss ready to pass his company along to JNJ? Is JNJ ready to run the gauntlet of regulatory agencies in the EU, U.S. and China to become the dominant orthopedic company in the world?

Surprising even ourselves, we think the answer to both questions could well be “Yes.”

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One Response

  1. 1

    Hi, I just want to know about merger of synthes and Depuy Please inform me in details.

    Tushar Soni

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