Deals and IPOs

Johnson & Johnson to acquire Actelion for $30 billion with spin-out of new R&D company

Aveeno skincare, a Johnson & Johnson product.
Jodi Gralnick | CNBC

U.S. health care giant Johnson & Johnson will acquire Swiss biotech company Actelion in a $30 billion all-cash deal that includes spinning off Actelion's research and development pipeline, the companies said on Thursday.

The acquisition gives J&J access to the Swiss group's line-up 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 offer to pay $280 per share, following weeks of exclusive talks, was unanimously approved by the boards of directors of both companies.

The deal represents a 23 percent premium to Actelion's closing price on Wednesday of 227.4 Swiss francs and is more than 80 percent above the Nov. 23 closing price before initial reports emerged that Europe's biggest biotech company had attracted takeover interest.

Actelion shares jumped 20.5 percent to 274 francs by 0830 GMT.

"The price is quite high at around 30 times price to estimated 2018 earnings. J&J is paying a lot and R&D is not even included, just a substantial minority stake," one Zurich-based trader said.

"But it represents only 10 percent of (J&J's) market capitalization and they are finally investing the cash they hold in Europe."

Jefferies analysts said they did not expect any counterbids or competition concerns to derail the deal.

Actelion has been the subject of takeover speculation for weeks after J&J launched and then halted discussions with the Swiss company. French drugmaker Sanofi had also been interested, sources said, but was sidelined after J&J returned and began exclusive negotiations in December.

Sanofi's failure to come away with a big deal for a second time has added to pressure on its management.

R&D business

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.

The U.S. group, which reported disappointing quarterly results this week, will fund the transaction with cash held outside the United States.

"We believe this transaction offers compelling value to both Johnson & Johnson and Actelion shareholders," Alex Gorsky, J&J chairman and chief executive, said in a statement.

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 CEO Jean-Paul Clozel. The break-up plan was first reported by Reuters last month.

The shares of R&D NewCo will be distributed to Actelion's shareholders as a stock dividend and the new unit will be launched with 1 billion francs in cash.

J&J will initially hold a 16 percent stake in R&D NewCo and will have rights to an additional 16 percent of the company's equity through a convertible note. It will also get an option on ACT-132577, a product within R&D NewCo being developed for resistant hypertension and now in phase 2 clinical development.

J&J said it expected to retain Actelion's presence in Switzerland. Lazard acted as lead financial advisor to J&J, while Bank of America Merrill Lynch was Actelion's lead adviser.

The transaction is expected to close by the end of the second quarter, with J&J commencing the tender offer by mid-February.

It is conditioned upon winning at least 67 percent of all Actelion shares, regulatory approvals and Actelion shareholder approval of the distribution of shares of R&D NewCo.