Johnson and Johnson 2014 Annual Report Download - page 62

During the fiscal second quarter of 2012, 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 was $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. During the fiscal third quarter of 2013, the Company
settled the remaining liabilities under the ASR agreements for $2.9 billion in cash which was recorded as a reduction to
equity.
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 continues to execute the integration plans to combine businesses, sales organizations, systems and
locations as a result of which the Company has and will continue to incur integration costs.
The operating results of Synthes were reported in the Company’s financial statements beginning on June 14, 2012. Total
sales and net earnings for Synthes for the fiscal year ended December 30, 2012 were $2,159 million and $324 million,
respectively.
The following table provides pro forma results of operations for the fiscal year ended December 30, 2012, as if Synthes,
Inc. had been acquired as of the beginning of the period presented. The pro forma results include the effect of divestitures
and certain purchase accounting adjustments such as the estimated changes in depreciation and amortization expense on
the acquired tangible and intangible assets. However, pro forma results do not include any anticipated cost savings or
other effects of the integration of Synthes, Inc. Accordingly, such amounts are not necessarily indicative of the results if the
acquisition had occurred on the dates indicated or which may occur in the future.
Unaudited Pro forma
consolidated results
(Dollars in Millions Except Per Share Amounts) 2012
Net Sales $68,894
Net Earnings attributable to Johnson & Johnson $11,564
Diluted Net Earnings per share attributable to Johnson & Johnson $4.11
52 •Johnson & Johnson 2014 Annual Report