J&J Locks in Actelion Price in Dollars, Avoiding Franc Swings

  • Move follows ChemChina’s use of U.S. currency in Syngenta deal
  • Actelion’s shareholder base also tilts toward U.S. investors

Why J&J Is Buying Actelion for $30 Billion

Johnson & Johnson is taking no chance of a nasty surprise from the currency market on its $30 billion acquisition of Actelion Ltd.

J&J’s agreement to buy Allschwil, Switzerland-based Actelion specifies that the $280-a-share price will be paid in U.S. dollars -- even though Actelion is listed on the Swiss stock market and its shares are priced in Swiss francs.

The decision means an unexpected surge in the franc against the greenback won’t drive up the purchase price, though J&J also won’t benefit from a weaker exchange rate between now and when the deal closes.

Bankers and executives have fresh memories of January 2015, when the Swiss National Bank shocked financial markets by abandoning the franc’s cap against the euro, sending the nation’s currency soaring. China National Chemical Corp. also priced its pending $43 billion acquisition of Swiss agrochemical company Syngenta AG in dollars.

“It’s a prudent thing to do when you want to lock in the price of a transaction,” Leopoldo Zambeletti, a former head of health-care banking at JPMorgan Chase & Co. and Credit Suisse Group AG and now an independent adviser, said by phone. “This way you limit the effect of the currency-exchange fluctuation.”

Paying in dollars is “consistent with what we’ve done in previous transactions,” Joaquin Duato, J&J’s head of pharmaceuticals, said at a news conference. Andre Muller, Actelion’s chief financial officer, noted that dollars are J&J’s operating currency.

Shareholder Choice

A shareholder in Basel-based Syngenta asked Chairman Michel Demare in April why the offer was in dollars. Demare said the market is too small to absorb such a big inflow without considerable effects on the value of the franc. Also, most of Syngenta’s large investors invest in dollars, he said.

However, the smallest shareholders are often given a choice. Investors who hold as many as 500 Syngenta shares at a Swiss bank will be able to receive payment in francs. Similarly, Actelion will set up a program for its Swiss investors who own no more than 1,000 shares so that they can be paid in the local currency.

For both Actelion and Syngenta, the biggest percentage of their shareholders hail from the U.S., according to data compiled by Bloomberg.

Currency Impact

If J&J paid in francs for even part of the acquisition, it could swing the currency, according to market analysts. 

“Even one part of the operation would lead to a strong rise of the Swiss currency, so to make sure to have a stable level, they are locking the USD/CHF,” Nordine Naam, a Paris-based strategist at Natixis SA, said in an e-mail.

The franc is often seen as a safe haven in times of political turmoil. Elections in France and Germany this year, unpredictable policies of U.S. President Donald Trump and the U.K.’s plan to quit the European Union may increase volatility before the Actelion purchase closes. J&J says it aims to complete the transaction by June 30.

The currency is expected to depreciate to 1.04 francs to the dollar in the second quarter, according to the median forecast in a survey compiled by Bloomberg. Still, the most bullish forecast sees the Swiss franc appreciating to 0.97 against the dollar, while the most bearish sees the currency dropping to 1.11 at the end of June.

The currency was trading at about 0.99 to the dollar on Thursday. After the Actelion deal was announced, the franc rose as much as 0.25 percent against the dollar and as much as 0.7 percent versus the euro, the highest since June 24.

— With assistance by Stefania Spezzati, Alice Baghdjian, and Roxana Zega

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