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J&J's tender offer for Mentor, announced on Monday, is $31 per share, a 92 percent premium to Mentor's closing price on Friday, although the shares traded above $40 at the start of 2008.
The acquisition underscores the interest in the market for plastic surgery and other aesthetic procedures even at a time when the rocky global economy may limit consumers' ability to pursue such options.
"I think it's a good deal for (Mentor)," Stanford Group analyst Jan Wald said. "It's at a pretty good price for them. J&J buys for the long term, so they probably saw value in the company longer term."
The acquisition will give J&J a high-margin product in breast implants just as growth is set to slow due to new generic competition for J&J's longtime major product, the schizophrenia drug Risperdal, and looming generic threats to another big seller, its epilepsy medicine Topamax.
"They are taking advantage of beaten-up stock prices and they have a growth gap to fill in 2009," said Jeff Jonas, portfolio manager with Gabelli Healthcare and Wellness Trust, which holds J&J shares.
The deal comes a week after J&J agreed to acquire Israel's Omrix Biopharmaceuticals for $438 million to expand its line of products used to control bleeding during surgery.
Some analysts said J&J's moves and the low price levels for many medical technology stocks, especially in the aesthetics niche, could be a sign of more merger activity to come in the healthcare sector.
"In this market, where you've got lots of depressed stocks out there, it's been somewhat puzzling as to why the strategic buyers, the J&Js of the world, haven't stepped in," said Piper Jaffray analyst Thomas Gunderson. "Maybe this is an indicator of accelerated consolidation in medtech."
J&J, which plans to run Mentor as a stand-alone business under its Ethicon division, said the acquisition would strengthen its presence in aesthetic and reconstructive medicine.
Santa Barbara, California-based Mentor sells silicone-filled breast implants. Its other products include equipment used in liposuction procedures. It also is developing facial wrinkle fillers to compete with Allergan Inc's Botox.
Shares of Allergan, which also sells breast implants, fell sharply on the news that its major rival was being acquired.
"AGN was also rumored to be a JNJ acquisition target, and this transaction likely ends that speculation and erodes a takeout premium in AGN shares," Jefferies & Co. analyst Peter Bye said in a note to clients.
Mentor, which has about 1,300 employees, posted sales of $373 million in its most recent fiscal year.
J&J, which sells an array of prescription drugs, consumer products and medical devices, is expected to post revenue of nearly $65 billion this year.
"It fits well with the consumer segment and in the direction J&J often said it wants to go, which is to combine consumer products with prescription products," Stanford's Wald said.
The deal, which has been approved by both companies' boards, is expected to close in the first quarter of 2009. It is expected to reduce J&J 2009 earnings per share by 3 cents to 5 cents, J&J said.
The deal has a net value of $1.12 billion including debt, it said.
Mentor shares jumped $14.46, or 89.5 percent, to $30.61 in midday trading on the New York Stock Exchange. J&J shares fell $1.78, or 3 percent, to $56.80, and Allergan shares were down $3.02, or 8 percent, at $34.66.
(Reporting by Lewis Krauskopf and Susan Kelly in Chicago, editing by Derek Caney and John Wallace)
((lewis.krauskopf@thomsonreuters.com; 646-223-6082;Reuters Messaging:Lewis.Krauskopf.reuters.com@reuters.net)) Keywords: JOHNSON&JOHNSON MENTOR/ (Multimedia versions of Reuters Top News are now available for: * 3000 Xtra: visit http://topnews.session.rservices.com * BridgeStation: view story .134 For more information on Top News: http://topnews.reuters.com)
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