Jan 17 (The following statement was released by the rating agency)
A proposed transaction between Johnson & Johnson (JNJ) and The Carlyle Group
is viewed as strategically sound, according to Fitch Ratings. We believe the margins and
long-term growth opportunities for this business had been lower versus those for the total firm.
While the sale will incrementally improve JNJ's total profitability, it should only modestly
reduce the diversification of its portfolio, given that the diagnostics business
accounts for roughly only 2.7% of total firm sales.
JNJ this week announced that The Carlyle Group has offered to buy its
Ortho-Clinical Diagnostics business for $4.15 billion in cash. The transaction
is expected to close mid-year 2014, assuming various regulatory approvals and
stakeholder agreements. JNJ had previously announced that it was evaluating
strategic options for the business.
JNJ had roughly $25.2 billion in cash and marketable securities and a net cash
position of $10.1 billion at Sept. 30, 2013. In addition, leverage (total
debt/EBITDA) for the latest 12-month period was 0.65x. As such, Fitch believes
the company has solid liquidity and ample discretionary headroom regarding how
it uses the anticipated proceeds from the transaction.
Fitch believes JNJ, as well as other large branded pharmaceutical firms, will
continue to strategically evaluate their portfolios. We anticipate that other
potential divestitures in the sector will be generally neutral to ratings, as
the possible reduction in portfolio diversification will be mitigated by the
prospects for improved growth and profitability.
Fitch's issuer default rating for JNJ is 'AAA' with a Stable Rating Outlook.