Johnson & Johnson to Acquire Actelion for $30 Billion With Spin-Out of New R&D Company

Johnson & Johnson to Acquire Actelion for $30 Billion With Spin-Out of New R&D Company

Johnson & Johnson (NYSE:JNJ), the world’s largest healthcare holding company, with total registered worldwide sales of $71.89bn in 2016, has unveiled its intention to acquire the Swiss drug-maker Actelion Ltd (SIX:ATLN) with a move that will cost $30bn to the US company.

Johnson & Johnson

Johnson & Johnson is an American multinational medical devices, pharmaceutical and consumer packaged goods manufacturer founded in 1886. It has more than 250 companies located in 60 countries around the world while their products are sold in over 175 countries. Their companies are broken down into several business segments: consumer healthcare, medical devices and pharmaceuticals. Johnson & Johnson’s consumer healthcare segment produces a variety of consumer care products in the areas of baby care, skin and hair care, wound care, oral health, OTC medicines and nutritionals.
Johnson & Johnson’s brands include numerous household names of medications and first aid supplies.
Among its well-known consumer products are the Band-Aid Brand line of bandages, Tylenol medications, Johnson’s baby products, Neutrogena skin and beauty products, Clean & Clear facial wash and Acuvue contact lenses. Its common stock is a component of the Dow Jones Industrial Average and the company is listed among the Fortune 500. Johnson & Johnson had worldwide sales of $71.8 billion during calendar year 2016.

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Source: Bloomberg

It’s easy to say that J&J is particularly active in the mergers sector: In July 2016, J&J announced its intention to acquire the privately held company, Vogue International LLC, boosting Johnson & Johnson Consumer Inc. In September of the same year, J&J announced it would acquire Abbott Medical Optics from Abbott Laboratories for $4.325 billion, adding the new division into Johnson & Johnson Vision Care, Inc.

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In January 2017, J&J subsidiary Ethicon announced it would acquire Megadyne Medical Products, Inc., a medical device company that develops, manufactures and markets electrosurgical tools.


Actelion Ltd. is a leading biopharmaceutical company focused on the discovery, development and commercialization of innovative drugs for diseases with significant unmet medical needs. The company has its corporate headquarters in Allschwil/ Basel, Switzerland where it was founded in 1997. Its shares have been listed on the SIX Swiss Exchange (ticker symbol ALTN) since 2000. In September 2008, Actelion shares began trading as part of the blue-chip SMI® (Swiss Market Index). Since its founding more than fifteen years ago, Actelion has become a new kind of biopharmaceutical company: one that blends biotech‘s innovation, speed and flexibility with big pharma’s operating discipline and excellence in execution. With the intrinsic belief that innovation in all domains is the key to growth, Actelion has built a promising pipeline, seven approved products, and commercial operations in over 30 countries while employing more than 2,600 employees.

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Source: Bloomberg

Healthcare Sector – Overview

The value of M&A deals in the healthcare sector reached $546 billion in 2015, seeing a 2.5 times increase over the previous decade’s average annual value. During the year, 5 deals were announced over $20 billion, excluding the Pfizer-Allergan deal which was called off in April 2016. The value of this single deal would have been $160 billion and the merger was terminated after the U.S. government proposed regulations to crack down on corporate tax inversions.

Since in 2015 the global M&A deal value was nearly $5 trillion, it is possible to say that the healthcare sector accounted approximately for 10% of the total value. From 2012 to 2015, overall M&A grew at a CAGR of 24% while healthcare M&A grew more than twice as fast, at a 50% CAGR. By most measures, deal activity in the US health services industry declined in Q3 when compared quarter-over-quarter and year-over-year. The total number of deals decreased to 214, versus 252 in Q2 2016 and 262 in Q3 2015. Total deal value was recorded at $20.0 billion, increasing 23.8% when compared quarter-over-quarter. Although value decreased by 82.0% year-over-year, Q3 2015 is considered to be an exception compared to other quarters in terms of total deal value.

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Mergers by value and count in the Healthcare sector – Source: Bain Report

The factors that drove this sector to keep growing could be explained through:

  1. Economic strength: the combination of a low interest rate world with the continuing strength of the economic led to an outstanding scenario of M&A deals.
  2. Obamacare: this project along with the Affordable Care Act has deeply changed the health care insurance landscape. There was not only an improvement in affordability and availability of insurance coverage but also a reduction of uninsured people. These innovations might have influenced M&A activities both on a quantitative way, by increasing the number of deals, as well as on a qualitative way, by increasing complexity of deals in aspects related to the due diligence process.
  3. Health Insurance Mergers: there was a significant boost in this sub-sector. Despite the big growth rate, the governments are trying to stop the biggest mergers in the insurance sector. Two examples are provided: The justice department and several states sued Aetna and Humana in July to block their $37 billion merger deal, alleging that the acquisition would limit insurance choices for seniors in many parts of the USA and significantly boost prices. Moreover, the Anthem Inc. and Cigna Corp a Justice Department lawyer said at the beginning of November that the biggest merger in the history of the American health-insurance industry should be blocked because it will increase the companies’ dominance and cut consumer choice. An attorney for Anthem responded that the combined company will be able to lower rates paid to health-care providers and that those savings will be passed on to employers.
  4. Drug company consolidation and acquisitions: it is estimated that there were $221 billion in deals in the pharmaceutical sector during the first half of 2015. This is three times the amount than in the first part of 2014. In one of the largest deals of the year, Actavis bought Allergan in a stock and equity transaction valued at around $70.5 billion. In another deal, generic drug maker Teva Pharmaceuticals said it will buy the generics business in a spin-off from Allergan in a deal valued at $40.5 billion.
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CAGR of the mergers in the overall market and in the healthcare sector- Source: Bain Report

Deal structure

J&J will launch an all-cash tender offer in Switzerland to acquire all of the outstanding shares of Actelion for $280 per share, representing the biggest European drugs takeover in 13 years. French drug-maker Sanofi (SNYNF)had also been interested but was sidelined after J&J returned, and began exclusive negotiations in December. J&J said it expected the transaction to be immediately accretive to its adjusted earnings per share and accelerate its revenue and earnings growth rates. It will fund the transaction with cash held outside the United States. Now, following the merger J&J-Actelion, Actelion will spin out its research and development unit into a standalone company based and listed in Switzerland, under the name of R&D NewCo and led by Actelion founder and current CEO Jean-Paul Clozel. The shares of R&D NewCo will be distributed to Actelion’s shareholders as a stock dividend upon closing of the tender. The arrangements will result in R&D NewCo launching with cash of CHF 1 billion to be made available at the closing of the transactions. J&J will also receive an option on ACT-132577, a product within R&D NewCo being developed for resistant hypertension currently in phase 2 clinical development. Together, these arrangements with R&D NewCo will provide Johnson & Johnson with additional sources of innovation and value. R&D NewCo will inherit Actelion’s fully established and validated drug discovery engine based in Allschwil, Switzerland and its proven and experienced discovery and development team. It will be well positioned to continue Actelion’s strong legacy of innovation to discover and develop new and differentiated products in multiple therapeutic areas.

Benefits of the deal

  • This deal will give J&J access to the Swiss group’s range of high-price, high-margin medicines for rare diseases, helping it diversify its drug portfolio as its biggest product, Remicade for arthritis, faces cheaper competition.
  • The transaction structure will provide flexibility for J&J to accelerate investment in its industry-leading, innovative pipeline to drive additional growth.
  • J&J expects to retain Actelion’s presence in Switzerland and also leverages its complementary capabilities in shaping medical paradigms.
  • The transaction will deliver a significant and immediate premium to Actelion shareholders, with greater value certainty as compared to Actelion’s standalone prospects. Actelion shareholders are also expected to realize substantial additional value from their ownership interest in R&D NewCo.
  • The transaction is expected to be immediately accretive to J&J earnings per share and accelerate J&J’s revenue and earnings growth rates, while enhancing long-term growth and value creation of the Janssen Pharmaceuticals business. Post-transaction close, J&J expects the transaction to increase its long-term revenue growth rate by at least 1.0% and its long-term earnings growth rate by 1.5% – 2.0% above current analyst consensus while J&J estimates EPS accretion in the first full year of $0.35 to $0.40. J&J shareholders are also expected to realize additional value from the J&J convertible ownership interest in R&D NewCo.
  • Extends Actelion products’ geographic and commercial reach: The J&J global presence and commercial capabilities will help open new markets and opportunities for Actelion’s in-market products and provide additional support for the successful launches of its promising late-stage therapies in highly competitive therapeutic areas.

Roadmap to Completion

The transaction is expected to close by the end of the second quarter of 2017. Moreover, Actelion will convene an Extraordinary General Meeting for shareholders to approve the distribution of shares of R&D NewCo by way of a dividend in kind to Actelion’s shareholders upon closing of the tender offer. The Extraordinary General Meeting is expected to be held in the second quarter of 2017.

The transaction is conditioned upon:

  • At least 67% of all Actelion shares that are issued and outstanding at the end of the offer period, which may be extended, tendering into the offer
  • The approval of the Actelion shareholders of the distribution of the shares of R&D NewCo at the EGM called for this purpose
  • Further customary offer conditions described in the offer prospectus, including regulatory approvals

Tax clearances in relation to the spin-off of R&D NewCo have been received from both the Swiss Federal and the Basel-Landschaft cantonal tax authorities. Jean-Paul Clozel has committed to tender all Actelion shares he owns into the offer and vote his shares in favor of the transaction at the EGM. Actelion’s Board of Directors unanimously recommends that Actelion shareholders tender their shares into the offer and vote in favor of the distribution of shares at the EGM.

Johnson & Johnson is prepared to pay the price per tendered share to the retail shareholders in CHF and therefore provide a wholesale exchange facility. The exchange facility shall be provided only to persons who hold their Actelion shares in a bank deposit in Switzerland, and who hold no more than 1,000 shares each.


Lazard and Citibank are acting as lead financial advisor to Johnson & Johnson. Cravath, Swaine & Moore LLP, Homburger AG and SextonRiley LLP are serving as legal advisors to Johnson & Johnson. Bank of America Merrill Lynch and Credit Suisse are serving as Actelion’s lead financial advisors. Niederer Kraft & Frey, Wachtell, Lipton, Rosen & Katz and Slaughter & May are serving as legal advisors to Actelion.


While some Analysts argue that the transaction is overpriced with respect to comparable transactions, the premium can be explained as a way to defeat competitive bidders. Moreover, the transaction price payment allows an efficient use of the significant amount of cash that Johnson & Johnson holds offshore so that no US tax for this invested money will be due compared to transferring it to the US.

Marcel Kwiatkowski
Virginia Bassano
Niccolò Di Lilla


FIG Coverage – Americas

FIG Coverage – Americas

With the quarterly earnings season already passed away, Financial Services companies have demonstrated to be the real winners in these turbulent times. The majority of the big banks, with some “excellent” exceptions, have outpaced analysts’ estimates. Cost-cutting and business optimization have been the main drivers for the rump-up in profitability.

Starting from Goldman Sachs, this bank is the main exception in the positive momentum banks earnings are experiencing. While major business lines have reported a solid growth pace, expenses have increased dramatically. Goldman Sachs earnings were deeply affected by litigation costs that the Company accounted in legal provisions, which amounted up to $2.77 per share, or $1.48bn. The Bank is in talks with authorities to settle the misconduct in the mortgage crisis. All the major business lines have shown solid growth. Investment Banking grew 13.4% YoY, with the Bank ranking in the top positions in all major Financial Advisors League Table, having topped, as of today, the $1 trillion threshold in Global announced M&A, according to Dealogic. Investment Management revenues increase reflect the effort of Management to focus in this business Area. The firm announced two acquisitions in asset management businesses since the start of the quarter, Imprint Capital, an impact investing firm, and Pacific Global Advisor Solutions from Pacific Life Insurance Company, a New-York based firm specialized in customized investment and risk Management solutions. Trading revenues have been mixed, with serious plunges in FICC, but good performances in Equity +24%. Overall, without legal charges accounted as provisions, the Bank outperformed market expectations.

 Goldman Sachs

Goldman Sachs

Morgan Stanley has been keeping a solid track record of economic performances. CEO James Gorman has been reshaping the Bank’s business focus and revitalized the Bank profitability. The Bank outpaced market consensus in Revenues reporting $9.8bn in Revenues vs. $9.1bn, and EPS excluding items at $0.79 vs. expectations at $0.74. Even if Investment Banking revenues fell almost 1%, Morgan Stanley, according to Thompson Reuters, ranked 2n globally in 1H 2015 in advising deals. MS Management is keeping on shifting from volatile businesses such as Bond Trading towards more stable and predictable ones such as Asset Management, which, as of today, accounts for 27% of its revenues. Trading Revenues shone, with great results in Equity, jumping 27% to $2.27bn. EPS on a YoY basis dropped almost 8% due to increased compensation costs. The Firm had a $609m tax benefit the year before.

Morgan Stanley

Morgan Stanley

Going forward to the biggest US banks by assets, J.P. Morgan beat profit analysts estimates, mainly due to reductions in litigation expenses, while other business lines remained flat. “Investment banking revenue was up 4% on higher advisory fees and higher debt underwriting fees, partially offset by lower equity underwriting fees compared to a strong quarter for equity underwriting in the prior year” (J.P. Morgan earnings release). J.P. Morgan continues to benefit from the prosperous M&A environment, being among the top three in the Financial Advisors League Tables. Corporate and Investment Banking unit instead reported a decline in Net Revenues of 6% from previous year, dragged by lower Lending revenues.Trading revenues are still mixed, while Equity trading soaring 27% and Fixed Income falling 21%. The Asset Management unit Net Revenues increased 6% up to $3.175bn, while “Assets under management were $1.8 trillion, an increase of 4% from the prior year, due to net inflows to long-term products and liquidity products.”

J.P. Morgan

JP Morgan

Bank of America Merrill Lynch surprised analysts reporting $0.45 EPS, vs. $0.36 consensus. “Solid core loan growth, higher mortgage originations and the lowest expenses since 2008 contributed to our strongest earnings in several years, as we continued to build broader and deeper relationships with our customers and clients. We also benefited from the improvement in the U.S. economy, where we are particularly well positioned,” CEO Brian Moynihan said. Bank of America has been one of the most affected banks in the mortgage crisis in terms of litigation expenses. Investment Banking fees amounted to $1.5bn, reporting slight decrease from the previous year, but still ranking 3rd globally, as of June 30, according to Dealogic. Trading Revenues were mixed as BofA’s peers, with uptrend in Equity S&T and downturn in FICC. Global Markets unit, on a YoY basis is down 7% from the previous year to $4.259bn. Asset Management fees increased 9% to $2.1bn, and Total Client Balances, which include Asset under Management, Asset under Custody, Client Brokerage Assets, and client deposits and loans totaled more than $2.5 trillion. The Bank efforts in expanding this particular area of business is reflected in the increased number of advisors, by 1077 workers. Litigation and operating expenses other than compensation and benefits dramatically decreased reflecting stronger effort in cost cutting and expense management.

Bank of America

Bank of America

Citigroup has been another bank who outperformed market consensus. Bank’s profits were hammered down last year by litigation expenses. The mortgage settlement with the US Department of Justice costs the bank more than $4bn. Quarterly profit saw a robust rebound. Institutional Client Group, the Corporate and Investment Banking arm of Citigroup, reported a 6% Increase in Revenues up to $8.9bn. “Investment Banking revenues of $1.3 billion decreased 4% versus the prior year period, as a 34% increase in advisory revenues to $258 million partially offset a 3% decrease in debt underwriting revenues to $729 million and a 25% decrease in equity underwriting revenues to $296 million”, Citigroup Press Release. Trading Revenue decreased mainly due to non recurring charge on the Equity segment for valuation adjustment. Fixed Income and Equity markets revenues totaled $3.7bn.



Some trends are identifiable. The majority of these Financial Institutions reported results that topped estimates due to improved conditions in the economic environment. Regarding the Investment Banking business the flat rate environment triggered an upticking volume in M&A, fueled by debt and equity financed transactions. Advisory business is experiencing a sprouting momentum. Most of the peers are investing in the Asset Management business, due to the safety and the predictability this business incorporates, and improved conditions in market confidence. Sales and Trading is experiencing weakness in the FICC, but strength in Equity. Overall, the sector was one of the most outperforming in this earning season. What the market will bring next?

For more references:

Earthquake in German Finance – Banking Insider

Earthquake in German Finance – Banking Insider

The Annual General Meeting of Deutsche Bank AG, which took place on the 20th May 2015, shook up the top Management. Angry shareholders have appointed the CO-CEOs Anshu Jain and Jürgen Fitschen as the main responsible of the Bank’s underperformance. In the past years, the bank has suffered plunges in profitability largely due to the vast amount of money expensed in fines and litigation after the mortgage crisis, and linked to Libor and Forex manipulations. During the meeting, Anshu Jain, a former trader and investment banker, emerged as the man who was going to be in charge of the new restructuring plan. The main driver of the plan was a strong cost-cutting campaign, which could boost profitability in all areas of business. In the last three years, Deutsche Bank’s stock has been one of the worst performing in the Banking sector. The plan, indeed, which is supposed to add billions to the bottom line, is very ambitious.

Few weeks later, yesterday, probably pushed by the board and the unhappy shareholders, the two CO-CEOs handed in their resignation note. Anshu Jain will be replaced by John Cryan, member from the supervisory board and former CFO of UBS, most likely at the end of June, while Jürgen Fitschen will probably step down after the next general meeting. The dual Management system is poised to end in one year. After the news, Deutsche Bank’s shares are rallying up, showing how investors are more confident on the classic single CEO management, and more reliant on the figure of the new CEO John Cryan. He will have a heavy burden to carry forward. Will he be able to implement the new restructuring plan and lead one of the most important European Bank to profitability again? Time will tell us.

Peer Analysis 8YR

Peer Analysis 30M

Deutsche Bank


Tancredi Viale @TanViale