Who Will Buy This Medical Giant's Diagnostics Business?http://www.fool.com/investing/general/2013/11/12/who-will-buy-this-medical-giants-diagnostics-busin.aspx Leo Sun
November 12, 2013
Diversified medical giant Johnson & Johnson (NYSE: JNJ) is usually identified by its three core businesses -- consumer health, pharmaceuticals, and medical equipment.
Its consumer health segment has continually grown despite years of recalls, its pharmaceutical segment is fueled by strong sales of top selling drugs like Remicade, and its medical equipment segment is bolstered by its dominant position in orthopedics, which it built on the acquisitions of Depuy and Synthes.
However, there's one business that J&J would like to part with soon -- its fading Ortho Clinical Diagnostics unit, a lagging business in its medical devices segment.
An aging, fading business
In recent years, however, companies such as Roche (NASDAQOTH: RHHBY) and Abbott Laboratories (NYSE: ABT) have made greater progress in molecular diagnostics, which have become a higher growth field than J&J's blood and chemical screening technologies.
At the end of 2012, Roche was the clear market leader in the in vitro diagnostics market, with a 20% global market share -- followed by Abbott at 11%, Siemens at 10%, and J&J at 9%.
As a result, J&J's diagnostics division has been waning in importance over the past year, as seen in the following chart.
The writing's on the wall -- J&J's diagnostics division is fading fast, and is becoming more of a liability than an asset to the medical device segment. Therefore, the logical thing to do is to sell the business -- which CEO Alex Gorsky has been considering since the fourth quarter of 2012.
Let the bidding begin!
In September, J&J made it official and hired JPMorgan Chase to run the sale of the diagnostics unit, which immediately attracted some major bidders, including Bain Capital, Carlyle Group (NASDAQ: CG), BC Partners, and a partnership between CVC Capital Partners and Leonard Green & Partners. J&J followed that up by seeking a second round of bids.
Last week, health care conglomerate Danaher Corporation (NYSE: DHR) partnered up with private capital manager Blackstone Group to make an offer as well.
The deal would be an ideal fit for Danaher, which owns a widely diversified business of professional, medical, industrial, and commercial products. Danaher's Life Sciences and Diagnostics segment, which accounts for 36% of its total revenue, reported 10.3% year-over-year sales growth to $1.7 billion last quarter.
Could other buyers be interested as well?
Abbott Labs is often considered a possible suitor. In my opinion, however, an acquisition by Abbott wouldn't make much sense since the company is more invested in higher growth molecular diagnostics t