Johnson & Johnson (JNJ.N) said on Thursday it would sell its ortho clinical diagnostics unit to buyout firm Carlyle Group LP (CG.O) for $4.15 billion, shedding a slow-growing business to focus on more lucrative products.
A major deal in the private equity world, the sale is small change for J&J, which has a market value of $267 billion and assets spanning pharmaceuticals, medical devices and consumer products. Analysts said the move highlighted J&J's determination not to waste resources on unloved divisions.
"Now with this divestiture nearly complete, we're inclined to believe (J&J) will continue to strategically prune its business segments and use the proceeds to return cash to shareholders or invest in higher-growth assets," Leerink analyst Danielle Antalffy wrote in a note.
J&J's diabetes business, which includes LifeScan blood glucose meters and Animas pumps, could be the next business to go, given slowing sales growth and weak margins, Antalffy said.
J&J shares were down marginally at $94.53 in afternoon trading on the New York Stock Exchange.
Reuters reported in December that Carlyle was nearing a deal to buy the business, trumping a joint bid from Blackstone Group (BX.N) and Danaher Corp (DHR.N).
Carlyle was attracted to the unit's potential to grow in emerging markets, according to a person familiar with the firm's thinking who was not authorized to speak publicly on the matter.
Washington, D.C.-based Carlyle plans to reinvigorate the unit's product lines, invest further in research and development, and grow the sales force, the person added.
J&J said in January 2013 that it was considering a sale or spinoff of the unit, whose products include equipment for laboratory diagnostics and blood transfusion screening.
J&J's businesses typically rank first or second in their markets. The diagnostics unit was ranked fifth among competitors based on sales, according to Thomson Reuters data.
"This transaction is a result of our disciplined approach to portfolio management in order to achieve the greatest value for Johnson & Johnson," Chief Executive Alex Gorsky said in a statement.
Drugmakers around the world are getting rid of non-core businesses as a way to cut costs in the face of pricing and reimbursement pressures from cash-strapped governments.
"I don't get the sense that they're going to follow the path of a Pfizer Inc (PFE.N) and Bristol-Myers Squibb Co (BMY.N) and kind of break up further. My sense is they're probably going to do some more of this slight restructuring," Morningstar analyst Damien Conover said.
The deal is Carlyle's biggest healthcare investment since it bought Manor Care Inc, a nursing, hospice and home health services provider, in 2007 for $6.3 billion.
Corporate carve-outs represent complex transactions for private equity as the acquired units can be deeply integrated in a parent company's finance, technology, logistics and human resources operations.
Carlyle, however, has experience with such carve-outs. In February 2013, it acquired DuPont's (DD.N) performance coatings business for $4.9 billion. In December 2012 it acquired, together with BC Partners Ltd, the former Hamilton Sundstrand industrial products businesses of United Technologies Group (UTX.N) for $3.46 billion.
Carlyle, which was advised on the J&J deal by Barclays and Goldman Sachs, said it had secured committed debt financing from Barclays, Goldman Sachs, Credit Suisse, UBS and Nomura. Latham & Watkins LLP acted as legal advisers to Carlyle.
JPMorgan, Cravath, Swaine & Moore LLP and Baker & McKenzie LLP advised J&J.
The companies said the deal was expected to close in mid-2014.
(Reporting by Caroline Humer, Bill Berkrot, Greg Roumeliotis and Soyoung Kim in New York, and Esha Dey and Vrinda Manocha in Bangalore; Editing by Bernadette Baum, Ted Kerr and Leslie Adler)