JNJ Reports – Positioning for a future sale?

JNJ Reports – Positioning for a future sale?

Looking over the results announced this morning by Johnson and Johnson (NYSE:JNJ) and their diabetes care unit, which grew domestically by 13.2% and 5.2% globally, results which were much better than anticipated one has to wonder if the company is positioning this unit for a future sale.  As Diabetic Investor has noted previously JNJ is not only very good at knowing when to get into a market but they are also astute at knowing when to exit a market. Unlike so many others in this space, JNJ is actually one of the few companies that actually have a real strategy and understands how to execute that strategy.

Although the unit continues to perform better than the competition, that’s hardly a ringing endorsement as the competition has proven to be inept and one of the major reasons why the unit continues to make gains. For all the talk about new products one of the major reasons LifeScan continues to extend its lead here in the US and continues to gain ground overseas is that their nearest competitor Roche primary strategy for their diabetes unit is to turn a multi-billion dollar unit into a multi-million dollar unit. When it comes to glucose monitoring and market share gains Roche is the gift that keeps on giving.

It should also be noted that unlike previous calls there was no mention today of Animas, JNJ’s insulin pump company. The fact is JNJ is caught between a rock and a hard place when it comes to Animas.  They know they have an ice cube chance in hell of catching market leader Medtronic (NYSE:MDT). They also see the many insulin pump newcomers coming to the market who’s main strategy will be to go after Animas and Insulet (NASDAQ:PODD) customers rather than take on Medtronic. Add in the many qualities issues and recalls, the mother ship would like nothing better than being able to dump this unit.

Yet LifeScan and Animas are now joined at the hip and while it would be possible to sell one and not the other, Diabetic Investor believes JNJ would attract a higher overall multiple selling both units together.

Some may question why JNJ would sell now when the unit seems to be doing so much better than the competition and for LifeScan anyway the unit is extending their leadership position. The simple answers is value, with Roche going nowhere but down, Abbott (NYSE:ABT) and Bayer treading water, JNJ has the most valuable diabetes device unit on the planet and there are companies who would love to own the market leader in BGM, companies who would be willing to pay a pretty penny.  The ultimate goal of any sale is to maximize value and there may be no better time than today for JNJ. Add in the fact there are several well-healed, willing potential buyers and this just might be the perfect set of circumstances for JNJ.

The bottom line here is actually quite simple, while everyone else in diabetes devices is doing their best impression of the Keystone Cops or Three Stooges; JNJ continues to execute their strategy. While some may not like the many management changes made or the fact that they have shed older, more expensive employers for younger, cheaper employees, it’s difficult to argue with the results. The company has known for some time that the BGM market has fully transformed into a commodity market and that it is one huge waste of money to try and take on Medtronic in the insulin pump market. Given the changes they have put in place, until they can find a buyer for the unit they will maximize profits, not a bad strategy compared to the competition who couldn’t hit water if they fell out of a boat in the middle of the ocean.