J&J: $10B Share Buyback Doesn't Impact M&A Plans

By Jof Enriquez,
Follow me on Twitter @jofenriq

Johnson & Johnson (J&J) is ready to consummate both small and large M&A deals, regardless of a $10 billion share buyback program announced recently. However, company management has stated it would adopt a disciplined approach to potential acquisitions based on long-term value.

The company's repurchase of up to $10 billion of J&J’s common stock, which will be financed through issuance of debt, could indicate that M&A opportunities are lacking. But, considering that the buyback plan is open-ended, and that J&J reported $37 billion in cash at the end of the third quarter, the company still has the financial strength to pursue M&A deals, according to Bloomberg.

"I wouldn't interpret the $10 billion share buyback as impacting our appetite for any size of M&A at all," Dominic Caruso, VP, Finance and CFO, J&J, told analysts in a conference call, per a Seeking Alpha transcript. "Our appetite for M&A of any scale has entirely to do with whether or not the acquisition is going to create value for shareholders. And as you know we are disciplined about that."

J&J is targeting businesses that could strengthen its product pipeline, accelerate business growth, and create shareholder value, but again, it will be doing so via a conservative approach, especially as company valuations are inflated currently amid industry consolidation.

"So I think in a disciplined focused approach where we divest we will also look at opportunities to acquire. I think certainly accelerating our pace of tuck-in deals would be a good opportunity for medical devices we seek, considering our scale in the market, especially in surgery and orthopedics, is large, and we anticipate accelerating that pace over the next 12 to 18 months," said Gary Pruden, Worldwide Chairman, Medical Devices, J&J, during the call.

Pruden added that J&J plans to launch 30 significant products in the next year or so, including orthopedics, but also on five unmet needs identified as next-growth drivers for the company. These areas include surgical oncology, obesity, select cardiovascular diseases, osteoarthritis, and osteoporosis. The company is building its pipeline from both internal and external innovation sources, according to Pruden.

In the call, he added, "We do investments in small companies and technologies through our Johnson & Johnson Development Corp. and we'll continue to evaluate the M&A field as well."

J&J is particularly upbeat on prospects in the surgical robotics segment, a $2 billion market projected to grow at a double-digit growth rate annually. The company said its surgical robotics platform collaboration with Google Life Sciences is presently in its development phase integrating informatics diagnostics with the surgical robot.

"We see disruptive opportunity happening in the next couple of years here for us to take a substantial share of the market going forward with a very different technology that’s integrated and delivers value for our customers," Pruden told analysts.