Carlyle Group LP (CG) agreed to buy the Ortho Clinical unit of Johnson & Johnson for $4.15 billion, a deal that would shed the health-care products company’s only diagnostics division.
The agreement is expected to close in the middle of the year, Washington-based Carlyle said today in a statement. Revenue has been slipping at the unit for blood and cholesterol tests, and it isn’t one of the market leaders, Chief Executive Officer Alex Gorsky said when New Brunswick, New Jersey-based J&J put the business up for sale last year.
Carlyle will operate the business as a stand-alone entity, said people with knowledge of the matter before today’s offer was announced. The deal reflects an industry trend in which Pfizer Inc., Bristol-Myers Squibb Co. and Abbott Laboratories have in the past two years sold, spun off or split apart non-core businesses after patent losses on top products. J&J may not be done, said Danielle Antalffy, an analyst at Leerink Partners.
“We’re inclined to believe JNJ will continue to strategically prune its business segments,” Antalffy, who is based in New York, wrote today in a note to clients. She said the company’s diabetes business “may be the target of future strategic alternatives.”
Carlyle, the world’s second-biggest manager of alternative assets such as private equity and real estate, has asked banks to line up about $3.3 billion in debt for the acquisition, with the rest funded by cash, said one of the people, who asked not to be named because the negotiations were private.
“We expect to tap into rising demand for sophisticated medical diagnostic products and services worldwide,” Stephen Wise, a managing director at Carlyle, said in the statement.
Ortho Clinical, which makes diagnostic equipment that tests blood for everything from cholesterol to fertility hormones, reported earnings before interest, taxes, depreciation and amortization of about $475 million in 2012. Carlyle plans to invest heavily in research and development as well as international expansion, said the person, who is familiar with the company’s strategy.
J&J fell less than 1 percent to close at $94.64 in New York.
“I think J&J will reinvest the money on the pharmaceutical side, on early- and late-stage drugs, and on the device side they will focus on tuck-in acquisitions,” Glenn Novarro, a New York-based analyst at RBC Capital Markets LLC, said in a phone interview. Novarro, who has an outperform rating on J&J, said the price Carlyle offered was “reasonable.”
The acceptance period for the offer ends on March 31, J&J said in a separate statement. The company said it will consult with its works councils and trade unions during that time.
The company received three final offers for the division including the one from Carlyle, people familiar with the situation said last month: a joint bid from Blackstone Group LP (BX) and Danaher Corp. (DHR) and a combined offer from CVC Capital Partners Ltd. and Leonard Green & Partners LP.
Johnson & Johnson (JNJ) hired JPMorgan Chase & Co. (JPM) to help it sell the business after it decided to focus on molecular diagnostics. Reuters reported previously that J&J had entered exclusive talks with Carlyle.
Carlyle has been one of the most active private-equity bidders for health-care companies in the past couple of years, according to a person familiar with the firm’s strategies. The firm made an offer for Immucor Inc. ahead of its 2011 sale to TPG Capital as well as a bid for Life Technologies Corp. before its $13.6 billion sale last year to Thermo Fisher Scientific Inc., the person said.
It also acquired Pharmaceutical Product Development Inc. for $3.45 billion in 2011 and Healthscope Ltd. for $2.6 billion in 2010, according to data compiled by Bloomberg.
Carlyle oversees $185 billion in assets across 122 funds and 81 fund-of-fund vehicles. The firm was advised by Barclays Plc (BARC), Goldman Sachs Group Inc. (GS) and Latham & Watkins LLP. Johnson & Johnson received legal advice from Cravath Swaine & Moore LLP and tax advice from Baker & McKenzie LLP.
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