Johnson & Johnson Creeps Higher On Actelion Purchase
Johnson & Johnson (NYSE:JNJ)
New Jersey-based Johnson & Johnson is in talks to purchase Swiss biopharmaceutical firm Actelion, per sources close to the talks. The consumer goods mainstay is looking to expand its exposure in the pharmaceutical market by adding to its portfolio. Despite the rumors, the deal is still in preliminary talks, and has some hurdles to clear.
Actelion founder and CEO Jean-Paul Clozel has been notoriously against any sale, preferring to keep the company independent. However, markets reacted positively to the news, giving the swiss biopharma company a boost.
The deal follows a string of high-profile mergers and acquisitions, though it has confused some analysts. Skepticism remains that the acquisition will bring enough synergies to be worth the price even, though JNJ has the funds. On the whole, Johnson & Johnson received a small boost in share prices on the report.
JNJ Looking to Invest
Johnson & Johnson is in preliminary talks to purchase Actelion, per reports late on Thursday evening. The news reflects JNJ’s strategy of building on its three core segments: consumer, medical devices, and pharmaceutical. Actelion produces a series of popular lung medication.
The deal would mark a strong departure from previous policy for Actelion, which has resisted several takeover efforts. The company, valued at $17 billion and led by Clozel, has fought fiercely to remain independent. As recently as 2015, Actelion turned down a massive offer from UK-based Shire PLC.
Reports indicate that Clozel, 61, might be more amenable to a sale if the price is high enough. However, there is no guarantee the talks will lead to any agreement. Regardless this is further than other companies have gotten with Actelion.
If approved, the acquisition would give JNJ a broader portfolio of pharmaceutical products. Actelion recently introduced two new lung medications that are set to be major sellers in the coming three years. They are facing stiff competition with some of their more dated patents.
Technically Speaking
JNJ shares have been trending lower since the summer months, recently crossing below a major support level at $113.10. Since the election, the rising tide in equities has left Johnson and Johnson shares lower despite indices making new highs. The underperformance is clearly reflected by an oversold Stochastic Oscillator and Relative Strength Index. While indicating strong potential entry points, standing in the way of any JNJ rally are the 50 and 200-day moving averages.
With both moving averages trending above the price action, they are acting as resistance. Should the 50-DMA cross the 200-DMA to the downside, it could be interpreted as a bearish signal. In the meantime, supportive of further gains is the equidistant channel pattern emerging in the price action. JNJ trending near the bottom of the channel could present an opportunity to target the upper channel line. However, any sustained gains in JNJ shares will depend on crossing the moving averages to the upside over the near-term.
A Good Deal?
While the deal would represent a solid addition to JNJ’s pharmaceutical portfolio, the timing and value of the deal raise questions. JNJ is likely to face a favorable cash repatriation window, and despite a massive valuation, could pad earnings with repatriated funds.
There is also not much in terms of obvious overlap that could allow for synergies between the companies’ product lines. However, Johnson & Johnson has recently favored expansion through acquisition. If a deal is struck JNJ is unlikely to experience a major earnings boost, though it will be a net positive long-term.
[Image Courtesy of Flickr]
Disclosure: None