J&J's Still Mulling acquisitions Amid $10 Billion Share Buyback
Wednesday, October 14, 2015
Johnson & Johnson executives, embarking on a $10 billion share buyback program, emphasized Tuesday they still have the cash and the appetite for deals.
"I wouldn’t interpret the $10 billion share buyback as impacting our appetite for scale of any size in M&A at all," Chief Financial Officer Dominic Caruso said on a conference call Tuesday. "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."
His language leaves the door open for large-scale deals in an industry where transactions in the tens of billions of dollars aren’t uncommon. Nine acquisitions of $10 billion or more have been proposed, agreed to or completed thus far this year in the drug industry, according to data compiled by Bloomberg.
J&J’s repurchase program has no time limit, and the company had $37 billion in cash, equivalents and short-term investments at the end of the third quarter, leaving plenty of room for acquisitions. Management is "very disciplined" about what kinds of deals it pursues, Caruso said.
"They’re saying, ‘We need to do something here because we have this buildup of cash and we need to deploy it in some fashion because we don’t have a ready asset we can go out and buy,’" said Tony Butler, an analyst at Guggenheim Securities.
Caruso said the pharmaceutical division is focused on five key therapeutic areas: oncology, immunology, neuroscience, cardiovascular, and infectious disease and vaccines.
J&J has two other lines of business -- consumer products and medical devices -- and it has the capability to pursue a deal in any of the three.
The planned repurchases, double the amount allocated last year, may be an acknowledgment that the company doesn’t have any large-scale targets in its sights right now. After losing out to AbbVie Inc. in March in the bidding for cancer drug maker Pharmacyclics Inc., which ended up selling for $21 billion, the health-care giant hasn’t made another reported attempt to participate in the consolidation of the pharmaceutical industry’s biggest companies.
Rather than look for a big takeover, J&J should focus on smaller, tuck-in deals to get products to develop, because it has a better track record of delivering results from such acquisitions, said Jeff Jonas, a portfolio manager at Gabelli & Co.
J&J has had some successes building its drug portfolio through partnerships, licensing and smaller deals, citing products like cancer drugs Velcade, daratumumab and Zytiga, for example, Butler said.
"I do think they’ve done a very, very good job in the pharma business -- there’s tremendous evidence that they have," Butler said. "There’s been tremendous growth, there has been innovation and there have been deals."
bloomberg.com
