Johnson and Johnson 2012 Annual Report Download - page 59

The excess of purchase price over the estimated fair value of tangible assets acquired amounted to $15,785 million and
has been assigned to identifiable intangible assets, with any residual recorded to goodwill. Of this amount, approximately
$208 million has been identified as the value of IPR&D associated with the acquisitions of Corlmmun Inc. and
Synthes, Inc.
The IPR&D related to the acquisition of Synthes, Inc. of $63 million is associated with orthopaedic devices, and the IPR&D
associated with Corlmmun of $145 million is related to a CHF treatment. These IPR&D values were calculated using the
cash flow projections discounted for the risk inherent in such projects. Synthes, Inc. had a probability of success factor of
100%, discounted using a 14% rate. Corlmmun had a probability of success factor of 38%, discounted using a 25% rate.
During the fiscal second quarter, the Company completed the acquisition of Synthes, Inc., a global developer and
manufacturer of orthopaedics devices, for a purchase price of $20.2 billion in cash and stock. The net acquisition cost of
the transaction is $17.5 billion based on cash on hand at closing of $2.7 billion.
Under the terms of the agreement, each share of Synthes, Inc. common stock was exchanged for CHF 55.65 in cash and
1.717 shares of Johnson & Johnson common stock, based on the calculated exchange ratio. The exchange ratio was
calculated on June 12, 2012 and based on the relevant exchange rate and closing price of Johnson & Johnson common
stock on that date, the total fair value of consideration transferred was $19.7 billion. When the acquisition was completed
on June 14, 2012, based on the relevant exchange rate and closing price of Johnson & Johnson common stock on that
date, the total fair value of the consideration transferred was $20.2 billion. Janssen Pharmaceutical, a company organized
under the laws of Ireland and a wholly-owned subsidiary of Johnson & Johnson, used cash on hand to satisfy the cash
portion of the merger consideration.
The stock portion of the merger consideration consisted of shares of Johnson & Johnson common stock purchased by
Janssen Pharmaceutical, from two banks, pursuant to two accelerated share repurchase (ASR) agreements dated
June 12, 2012. On June 13, 2012, Janssen Pharmaceutical purchased an aggregate of approximately 203.7 million shares
of Johnson & Johnson common stock at an initial purchase price of $12.9 billion under the ASR agreements, with all of the
shares delivered to Janssen Pharmaceutical on June 13, 2012. Final settlement of the transactions under each ASR
agreement is expected to occur in the first half of 2013, and may occur earlier at the option of the two banks, as
applicable, or later under certain circumstances. Based on the theoretical settlement of the ASR agreements, an additional
19.3 million shares would be issued to settle the ASR agreements as of December 30, 2012.
In addition, while the Company believes that the transactions under each ASR agreement and a series of related internal
transactions were consummated in a tax efficient manner in accordance with applicable law, it is possible that the Internal
Revenue Service could assert one or more contrary positions to challenge the transactions from a tax perspective. If
challenged, an amount up to the total purchase price for the Synthes shares could be treated as subject to applicable U.S.
tax at approximately the statutory rate to the Company, plus interest.
The following table summarizes the consideration transferred to acquire Synthes, Inc. valued on the acquisition date of
June 14, 2012:
(Dollars in Millions)
Cash (multiply 55.65CHF by shares of Synthes common stock outstanding by the exchange rate) (A) $6,902
Common Stock (multiply 1.717 by shares of Synthes common stock outstanding by J&J stock price) (B) $13,335
Total fair value of consideration transferred $20,237
(A) Synthes common stock outstanding of 118.7 million shares as of the acquisition date and CHF/USD exchange rate of .95674
(B) Johnson & Johnson closing stock price on the New York Stock Exchange as of acquisition date of $65.45 per share.
The Company is still finalizing the allocation of the purchase price to the individual assets acquired and liabilities assumed.
The allocation of the purchase price included in the current period balance sheet is based on the best estimate of
management. To assist management in the allocation, the Company engaged valuation specialists to prepare independent
appraisals. Certain estimated values surrounding litigation loss contingencies are not yet finalized and are subject to
change. We will finalize the amounts recognized as we obtain the information necessary to complete the analysis. We
expect to finalize these amounts as soon as possible but no later than one year from the acquisition date.
Johnson & Johnson 2012 Annual Report •51