Health care products company Johnson & Johnson said Monday it is buying drug maker Pfizer Inc.’s consumer health care unit for $16.6 billion, a nearly all-cash deal that will boost its foreign distribution and add to its many well-known brands.
The deal would give New Brunswick-based Johnson & Johnson brand names including Listerine, Nicorette, Visine, Sudafed and Neosporin as part of a unit whose reported sales totaled $3.9 billion in 2005. Pfizer had been reviewing its strategic options for the division since February so it could focus on its prescription drug business.
Johnson & Johnson Chairman and Chief Executive William C. Weldon said such strong products rarely come on the market.
“These are extraordinary assets that will bring sustainable long-term value to the shareholders of Johnson & Johnson,” Weldon said. “We felt these were very important to us and we should make sure we bring them in.”
Weldon said the deal helps the company stick to its strategy of keeping a balanced portfolio among its three segments. Prescription drugs and the medical devices and diagnostics business now account for 40 percent and 35 percent of revenue, respectively, and consumer products only 25 percent.
Pfizer said it will buy back up to $17 billion in shares, including up to $7 billion this year and $10 billion in 2007. The plan reflects an increase to $18 billion from $5 billion in the company’s stock repurchase authority.
Weldon said the purchase won’t affect J&J’s $5 billion share repurchase plan, announced earlier this year and already more than 40 percent complete. He said that with approximately $17 billion in cash on hand, J&J will cover the purchase mainly with cash, plus some “complementary short-term borrowing.”
Johnson & Johnson, which had $50.5 billion in 2005 revenue, will also acquire the U.S. over-the-counter switch rights to the prescription nonsedating antihistamine Zyrtec upon patent expiration. Its own brands include Band-Aids, Tylenol and Neutrogena.
The deal, which was approved by the boards of both companies and is subject to regulatory and shareholder approval, is expected to close by year-end and boost Johnson & Johnson’s earnings in 2009. J&J executives said that by 2009, they would see $500 million to $600 million in savings from eliminating overlap.
The deal comes after J&J lost a high-profile bidding war to rival Boston Scientific Corp., which acquired heart-device maker Guidant Corp. for $27 billion in April. Analysts on a morning conference call expressed surprise that J&J didn’t seek another acquisition for a medical device or pharmaceutical business. Weldon responded that not only will the new consumer products drive growth, but the consumer business is the lowest risk of the company’s segments.
New York-based Pfizer said it expects about $13.5 billion in proceeds, after taxes, from the Pfizer Consumer Healthcare sale. Due to the stock buyback, the company said it doesn’t expect the sale to lower 2007 earnings, but it expects a profit boost in 2008.