The cost of integrating its most recent mega-merger are adding up for healthcare giant Johnson & Johnson (NYSE:JNJ), which this week revealed another $167 million hit to the bottom line from its $21.3 billion buyout of Synthes in the winter of 2012.
The latest charge brings the total price tag of integrating the companies to $800 million over the last 7 quarters, almost as much as the $899 million in special charges the company paid in 2012, the year it closed the deal.
During its earnings call with analysts this week, Deutsche Bank analyst Kristen Stewart expressed surprise over the continuing drag on the business.
"We’ve seen the special charges for Synthes continue for longer than I would have anticipated," Stewart told J&J execs during the call. "I’ve just been surprised by the magnitude and by how long we’ve been seeing that.”
Stewart asked the officials when they expect to fully integrate Synthes and put a stop to related 1-time charges. CFO Dominic Caruso sought to reassure, saying that the special charges were almost completed.
"Well, we are very careful to integrate this business in a way that wouldn’t be disruptive to our customers, and we made sure that that was our first priority," Caruso said. "There are a number of sites that we have to consolidate. These are 2 very large businesses, as you can imagine. So these integration activities are winding down and we should see less of the special charges going forward. And I would say that we’re very close to actually completing the full integration of Synthes."
The company’s DePuy Orthopaedics franchise, which has been tasked with integrating the Synthes business, announced this summer that had cut cut more than 400 jobs, or about 2% of its 23,000-employee workforce.
Company spokeswoman Lorie Gawreluk told MassDevice.com at the time that the company was "transforming our operating model to enhance our ability to offer broader portfolio solutions to hospitals, provide superior product innovation and expert service to surgeons, reinforce our organizational capabilities and align our cost structure to our evolving environment."
J&J’s troubles integrating the Swiss orthopedics firm may prove to be a bellwether for several other large medtech firms with pending mega-mergers: Zimmer (NYSE:ZMH) and its $13 billion union with orthopedics rival Biomet as well as Medtronic (NYSE:MDT) and its high-profile, $43 billion buyout of Covidien (NYSE:COV).