Jan 18, 2011
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Smith & Nephew shares jump on fresh J&J bid talk

Jan 18, 2011

Jan 17 - Shares in artificial knee and hip maker Smith & Nephew jumped 5 percent on Monday after a weekend report that Johnson & Johnson was considering a fresh takeover approach worth at least 800 pence a share.

An offer at 800p would value Europe's leading replacement joint company at 7.12 billion pounds ($11.3 billion). Its shares were trading at 723 by 2:35 a.m. EST.

The Sunday Times newspaper said, without citing sources, that U.S. healthcare giant J&J was understood to be weighing a formal offer for Britain's Smith & Nephew (S&N) after a tentative approach was rejected last year.

Speculation has swirled around S&N for the past week, since Sky News reported that it had received a 750p a share approach from J&J last month and the Daily Telegraph then said it had been approached by privately owned Biomet over a merger.

The initial talk of a bid from J&J lifted shares in S&N to a record high of 739p on January 10.

S&N, which also has woundcare and endoscopy units, said on Friday it was not currently in talks over a merger or takeover, and a spokesman said its position had not changed since then.

Officials at J&J, which has a market value of $172 billion, have said all along that they do not comment on rumours or speculation as a matter of policy.


S&N has long been seen as a takeover target for one of its big U.S. rivals -- which include Zimmer and Stryker, as well as J&J's DePuy unit and Biomet -- as pressure mounts on firms in the sector to achieve economies of scale.

"There is huge pricing pressure in the U.S. and until we see recovery in the jobs market, elective procedures are going to continue to get delayed, so orthopaedics companies are under pressure," said Matrix Corporate Capital analyst Navid Malik.

Antitrust considerations would be a hurdle for J&J but Malik said any required divestments in orthopaedics would be offset by the benefits of adding S&N's fast-growing woundcare and endoscopy businesses.

Malik, who rates S&N a "buy", said past deals suggested S&N could fetch around 3-1/2 times annual sales, or around 1,060p a share, in any takeover.

S&N Chief Executive David Illingworth acknowledged last week that scale was becoming increasingly important in orthopaedics and there would be consolidation in the industry.

"Customers are going to want to deal with companies that have a thoughtful, broad range of products and services," Illingworth told the J.P. Morgan Healthcare Conference in San Francisco.

By Ben Hirschler
(Editing by Hans Peters)

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