Johnson & Johnson shares were down roughly 1 percent to $64.30 as of about noon, while Synthes shares inched up 0.07 percent to 146.6 Swiss francs, or about $166.41 — not even 93 percent percent of the 159.0 CHF ($180.43)-per-share deal.
That’s likely due to worries that J&J will have trouble digesting its biggest-ever buyout. Another factor could be the deal’s cash-and-stock structure — J&J agreed to pay 55.65 CHF in cash (about $2 billion up front) and 103.35 CHF worth of its own stock in exchange for each Synthes share. But the final share exchange will be in a range of 1.7098t to 1.9672 JNJ shares for each Synthes shares, provided J&J stays between $68.62 and $59.64 (60.45 CHF and 52.54 CHF).
"It is surprising the deal has been struck between cash and shares. The market consensus, and our view, was it would be all cash, so the quality of the take-out is slightly lower than we anticipated,"Morgan Stanley analyst Michael Jungling told Reuters.
“The market is unsure about the exact and final terms of the deal,” added a Zurich-based trader, according to MarketWatch. “This is why Synthes’ shares aren’t moving at all and volumes are relatively thin when taking into account that this is a substantial takeover deal that looks relatively lucrative at first sight.
“Given this deal structure as understood by the market right now, an investor can only be sure that he will get the cash component of this deal for 100 percent. But what is going to happen if J&J’s shares slide or if the dollar is continuing its current slide against the Swiss franc?” the Zurich-based trader asked. “Had the phrasing of the deal been clear, the share price of Synthes should have traded close to the suggested offer price.”
“I will abstain from buying for the time being,” said Robert Scholl, who owns Synthes stock and manages the 8 billion CHF ($9.08 billion) pension fund Aargauische Pensionskasse. “The dollar value poses a problem, as well as the risk that shares of J&J could fall in the meantime. Also, the offer seems to be on the low side.”
And J&J could have trouble integrating the companies’ sales philosophies. CEO William Weldon told the Wall Street Journal‘s Health Blog that Synthes will be run under the DePuy umbrella and its more aggressive sales approach.
DePuy’s independent contractor reps "come to the office. They try to bring lunch for secretaries. They catch you coming out of the operating room," Dr. Thomas Mauri, vice chairman of the orthopedic surgery department at North Shore University Hospital/Long Island Jewish Medical Center, told the blog.
Synthes direct reps, on the other hand, send an email invitation for physicians to teach a residency course on surgical techniques, Mauri noted.
"They’re two totally different models that you’ll have to integrate," added Jim Rogers, CEO of Medical Sales College and AIMS Medical Sales Recruiting.
"The integration is going to be much simpler than you would think," Weldon told the Health Blog, noting that each company operates in a separate orthopedic silo, DePuy focuses in joint replacements and Synthes on orthopedic trauma devices like plates, screws and implants.
The deal is expected to close during the first half of 2012.