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The announcement sent Mentor shares up by over 89% in pre-market trading.
Under the agreement, Johnson & Johnson will commence a tender offer to purchase all outstanding shares of Santa Barbara, California-based Mentor for $31.00 per share. The offer is conditioned on the tender of a majority of the outstanding shares of Mentor's common stock on a fully diluted basis. The transaction has an estimated net value of $1.12 billion, including net debt.
Once completed, the transaction is expected to hurt New Brunswick, New Jersey-based Johnson & Johnson's 2009 earnings per share by about $0.03-$0.05. On average, 18 analysts polled by First Call/Thomson Financial expect the company to earn $4.67 per share for the quarter.
The deal is expected to close in the first quarter of 2009.
Johnson & Johnson has a variety of products ranging from contraceptives, baby care products, medical devices and prescription drugs and the company is on an expansion spree. The latest announcement is an effort by the company to strengthen its position in the aesthetic and reconstructive market.
Last month the healthcare giant agreed to buy Omrix Biopharmaceuticals, Inc. (OMRI | Quote | Chart | News | PowerRating), which develops and markets biosurgical and immunotherapy products, for about $438 million in a cash tender offer. That deal is expected to close by the end of December 2008.
In October, the company acquired privately held HealthMedia, Inc., which creates web-based behavior change interventions, for undisclosed terms.
The boards of directors of Johnson & Johnson and Mentor have approved the transaction with Mentor. Mentor is expected to operate as a stand-alone business unit reporting through Ethicon, Inc., a Johnson & Johnson company that provides suture, mesh and other products for a range of surgical procedures.
The acquisition of Mentor, known for breast implants and wrinkle treatment Botox, will help Ethicon strengthen its presence in aesthetic and reconstructive medicine and raise the standard for innovation and patient outcomes in this market.
Last month, Mentor announced a second-quarter profit of $9.8 million, down from $9.9 million reported last year. Excluding one-time items, the company's quarterly profit slipped to $8.4 million or $0.23 per share, from $10.8 million or $0.29 per share, in the previous year. Total sales for the quarter edged down 1% to $84.5 million from $85.4 million in the same quarter last year.
Commenting on the deal, Alex Gorsky, company Group Chairman for Johnson & Johnson with responsibility for the Ethicon business worldwide, said, "The addition of Mentor, a market-leader and one of the most respected companies in the aesthetic space, expands our capacity to provide physicians with products that can restore patients' appearance, self-esteem and quality of life."
According to Josh Levine, President and Chief Executive Officer of Mentor, "Ethicon and Mentor share a common set of values in terms of commercial market leadership, the commitment to developing innovative, science based products, and unwavering service to physicians and patients. This transaction allows Mentor to expand our product portfolio and significantly grow our global reach."
MNT closed Friday's regular trade at $16.15 on 146,700 shares, up from the previous close of 15.75. The stock surged $14.40 or 89.16% in pre-market trading on the merger news and is currently trading at $30.55.
JNJ finished up Friday's regular trading session at $58.58, higher than the prior close of $58.27, on 7.69 million shares. The stock is little changed in pre-market activity so far.
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