This morning according to several reports Johnson and Johnson (NYSE: JNJ) has agreed to sell their LifeScan unit to private equity firm Platinum Equity for $2.1 billion. While this is good news for JNJ the sale price is well below the initial reports that this unit would go for over $3 billion. Now we know very little about this group or what their plans are, but this news marks a sad ending to what was once a mighty unit.
Since we have chronicled the demise of both LifeScan and Animas, their insulin pump unit which they could not sell and instead decided to shut it down, proving that even a smart company like JNJ can turn gold into sand, it is not necessary to go into a long eulogy. The reality is LifeScan isn’t dead it’s just under new management. On the other hand, Animas will be dead, and its death will have serious repercussions throughout the insulin pump world, something we have also written about extensively.
Now that this saga has come to an end about all we can add is this is one-time JNJ screwed up and screwed up badly. The reality is these units should have been sold years ago and had they been would have fetched a handsome multiple. However, by waiting too long the company cost themselves billions and let’s be honest ended up with egg on their face.
So where do we go from? Will the new owners be able to reinvigorate the unit? Or will they just milk it? In the grand scheme of things does it matter?
Listen right now we’re still trying to figure out how the 13th seeded Buffalo Bulls dominated the mighty Arizona Wildcats and busted millions of brackets. And as long as we’re talking NCAA congrats to the Loyola Ramblers who pulled off their own upset, way to go guys. But we digress.
Anyway, we don’t see this news as really changing much at all. The fact is CGM is on its way to replacing BGM as the standard for glucose measurement. BGM will stick around for a while but usage will continue to shrink, and prices will continue to contract.
Perhaps a better question to ask what does Platinum plan to do with all the patients they just acquired, as to us this is the real value of LifeScan. Again, we don’t know much about this group, but they must know what we know in that BGM is dying a slow and painful death. We assume they know this given the price they paid. They must see the handwriting on the wall, understand that yes internationally they can grow a little but in the major developed markets BGM is going the way of landlines and horse drawn carriages.
Maybe they see this and still plan on milking the unit. Listen the unit still throws off tons of free cash so maybe they will use this free cash to buy other diabetes device companies and build a diabetes eco-system. Oh wait, JNJ tried this already, screwed it up, ending up shutting down Animas and selling LifeScan for a fraction of what it should have sold for had they sold it when it should have been sold.
The most laughable quote contained in the company’s press release which announced the deal comes from Ashley McEvoy, Company Group Chairman, Consumer Medical Devices, Johnson & Johnson who stated; “This initiative is part of our ongoing, disciplined approach to portfolio management to focus on our most promising opportunities to help patients and drive growth.” The fact is there was nothing disciplined about this from the start. Had Ms. McEvoy, who’s rumored to be in line for the top spot at JNJ, not been greedy LifeScan would have fetched a higher multiple and Animas wouldn’t be shutdown with the company getting NOTHING.
Sorry if we sound a little snarky this morning but seriously Buffalo beating Arizona is just stunning. About the only good thing is its not just our brackets that are screwed. Then again this may work in our favor as we have the Kentucky Wildcats winning it all and had Arizona won they would have faced each other on Saturday. While there is no guarantee the Wildcats will beat Buffalo, most would agree Arizona would have been a much tougher opponent. But again, we digress.
We’ll conclude by stating that its appropriate this news comes on the eve of St. Patty’s Day as maybe the luck of the Irish will be with the good people at Platinum. Maybe just maybe they won’t screw up what could be a very good thing. Maybe they will do what JNJ couldn’t or wouldn’t do and think strategically.
So, enjoy St. Patty’s Day everyone and go CATS and Ramblers.