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Synthes Investor Suits Over J&J Takeover Dismissed

Synthes Inc. investors can’t proceed with claims that they were shortchanged by Johnson & Johnson’s $21.3 billion takeover of the medical-device maker, a judge concluded.

Delaware Chancery Court Judge Leo Strine rejected shareholder lawsuits claiming that Hansjoerg Wyss, Synthes’s chairman and controlling shareholder, engineered the J&J transaction to meet his retirement needs rather than to get the highest price for the firm, a maker of devices used to treat trauma victims.

The investor lawsuits don’t provide enough facts “to suggest that Wyss forced a crisis sale of Synthes to J&J in order to satisfy some urgent need for cash,” Strine said in an Aug. 17 decision. “The plaintiffs’ argument that Wyss had somehow become an impatient capitalist is therefore strikingly devoid of pled facts to support it.”

Synthes shareholders are slated to receive about 55.65 Swiss francs ($57.21) and about 1.72 shares of J&J stock for each share they own. The shares of West Chester, Pennsylvania-based Synthes trade in Switzerland, Wyss’s home country.

J&J, the world’s second-biggest seller of health-care products, said June 12 that it entered into accelerated buyback agreements for about $12.9 billion in shares with Goldman Sachs Group Inc. and JPMorgan Chase & Co. to help pay for the acquisition.

‘Smooth Integration’

“We are pleased with the court’s decision, and are moving ahead with a smooth integration of Synthes to form the world leader in orthopedics,” Bill Price, a J&J spokesman, said today in an e-mailed statement. the acquisition, officials of the New Brunswick, New Jersey-based company said when the deal was announced in April 2011.

Synthes already has 50 percent of the market for screws, plates, bone grafts and other products to treat skeletal injuries, Navid Malik, an analyst now with Cenkos Securities Plc in London, told Bloomberg in a 2011 interview. U.S. antitrust regulators cleared the deal this year.

Synthes also agreed in May 2011 to sell its Norian unit, which pleaded guilty to felony and misdemeanor criminal charges for conducting an unauthorized trial of its bone-mending cement as part of its marketing efforts, to Kensey Nash Corp. for $22 million. Kensey Nash, a maker of absorbable cardiac medical devices, is a unit of Netherlands-based Royal DSM NA.

Guilty Pleas

Four Synthes executives pleaded guilty in connection with the bone-cement marketing campaign and received sentences ranging from five months to nine months in jail. Prosecutors alleged the officials marketed the cement for spinal fractures even after studies showed it caused blood clots.

Wyss, the founder of Synthes, sought to sell the company so he could retire and become a philanthropist, investors including a Massachusetts-based pension fund and another retirement fund backed by the Teamsters Union contend in court papers.

Instead of taking higher offers from unidentified private-equity firms, Wyss pushed the Synthes board to back J&J’s offer so he could sell his shares and gain tax advantages, shareholders argued in the Delaware case.

The other board members never required Wyss to step aside during the sale negotiations despite his conflicting interests, the shareholders alleged.

Synthes directors countered that they properly used their business judgment to evaluate the different offers and that the $21.3 billion deal provides a 26 percent premium to investors.

Properly Shopped

The board said in court filings that it properly shopped the company around for the best price and that Wyss didn’t have any improper interest in the sale.

In his 46-page ruling, Strine said Synthes executives didn’t rush to take the first offer.

The facts of the case “indicate that it was a patient process reasonably calculated to generate the highest value the market would pay for Synthes,” the judge wrote.

“Contrary to Synthes rushing into the arms of any particular buyer fast, Synthes took its time, gave bidders access to non-public information, and the chance to consider the risks of making a bid and to raise financing for a bid,” Strine added.

Wyss also wasn’t required to structure the sale of Synthes to provide minority investors the best possible deal at his own expense, the judge noted.

Synthes’ founder was entitled “to oppose a deal that required him to subsidize a better deal for the minority stockholders by subjecting him to a different and worse form of consideration,” Strine said. “To hold otherwise would turn on its head the basic tenet that controllers have a right to vote their shares in their own interest.”

The case is In re Synthes Inc. Shareholder Litigation v. Wyss, CA6452, Delaware Chancery Court (Wilmington).

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