Johnson & Johnson’s $16.6bn Deal for Abiomed Deal a Positive

By Sam Boughedda 

Johnson & Johnson (NYSE:) announced Tuesday that it has agreed a $16.6 billion deal to acquire heart pump maker Abiomed (NASDAQ:).

The company will pay $380 per share in cash for Abiomed, representing an over 50% premium to Abiomed’s last closing price. The deal is set to be completed before the end of the first quarter of 2023. In addition, Abiomed shareholders will also receive up to $35 per share in cash if certain commercial and clinical milestones are achieved.

Johnson & Johnson is currently spinning off its consumer health business to focus on pharmaceuticals and medical devices.

“The addition of Abiomed is an important step in the execution of our strategic priorities and our vision for the new Johnson & Johnson focused on Pharmaceutical and MedTech,” said Joaquin Duato, Chief Executive Officer of Johnson & Johnson. “We have committed to enhancing our position in MedTech by entering high-growth segments.”

Following the news, Stifel analysts said that reading through to the rest of MedTech, they are “inclined to see this deal as positive.”

“ABMD highlights the importance of growth/innovation for larger companies like JNJ. In acquiring ABIOMED , JNJ commentary strongly suggests that clinical innovation/pipeline/market expansion are the key priorities post-close. JNJ’s global strength should help scale ABMD OUS expansion, currently ~20% of ABMD sales. Financially, JNJ expects a 1Q23 deal close, and a “neutral to slightly dilutive” 2023 EPS impact and $0.05 benefit in 2024. Pending the deal’s close, our estimates are unchanged,” the analysts wrote.

Elsewhere, Morgan Stanley analysts told investors in a note that the deal “aligns with JNJ’s strategy focusing on higher growth markets in Medtech.”

“JNJ expects to fund the transaction through a combination of cash on hand and short-term financing (as of the end of 3Q22 JNJ had cash and equivalents of $34bn),” the analysts explained. “The deal will add a 12th $1bn+ annual sales division to JNJ’s Medtech franchise. The MS Medtech team estimates ABMD top-line revenue will grow from ~$1.1bn in FY23 to ~$1.8bn in FY27, representing an additional 2% in revenues to JNJ by CY27. FY23 operating margins for ABMD are expected to expand from 23.6% to 32.3% in FY27, which is below JNJ operating margins of 33.3% in CY27.”