Johnson & Johnson, ALZA announce merger

In its largest-ever merger, pharmaceutical industry leader Johnson & Johnson announced yesterday that it would merge with a California-based pharmaceutical manufacturer in a stock-for-stock exchange. Estimated to have a net equity value of $10.5 billion, stockholders of the ALZA Corporation will receive .49 shares of Johnson & Johnson stock for every ALZA share possessed, tax-free.

Johnson & Johnson officials described the merger as a pooling of interests, culminating a 15-year cooperative relationship. In addition to its pharmaceutical manufacturing, ALZA develops technology for more effective delivery of therapeutic compounds within the body. "It's an excellent strategic fit for Johnson & Johnson," company spokesman Bob Andrews said. "We're adding new pharmaceuticals to complement existing J-and-J products in areas like oncology, urology, pain management, the central nervous system and women's health," fields for which ALZA manufactures more than 15 products, he said.

ALZA Spokesman John C. Liu shared Andrews' outlook. "We'll be able to take our advanced [drug delivery] technologies and apply them to a new spectrum of pharmaceuticals," Liu said, referring to the thousands of drugs produced, manufactured and distributed by Johnson & Johnson's 194 subsidiary companies. "We'll deliver safer and more efficacious products."

At the close of trading yesterday, Johnson & Johnson stock was valued at $83.25 per share, a decline of 2.49 percent from its Monday finish at $85.38. TheStreet.com's weekly outlook - posted on the financial analysis Web site before the merger's announcement - for Johnson & Johnson stock was not positive. Company stock "shows strongly deteriorating conditions," the site's "Second Opinion Weekly" section posted. ALZA stock closed slightly higher yesterday than the day before, from $38.75 per share up to $39 yesterday.

Liu said ALZA's earnings assurance it gave to Wall Street in January would not be impacted by the merger. "We still anticipate 20 percent growth on our earnings per share this year," he said.

Neither company is a stranger to mergers - or each other. Last year, Johnson & Johnson completed a $4.9 billion merger with Pennsylvania biotechnology company Centocor, previously the largest merger Johnson & Johnson embarked upon. ALZA and Johnson & Johnson subsidiary McNeil Consumer Healthcare reached an agreement last year to co-promote Concerta, an ALZA drug treatment for Attention Deficit Disorder.

But ALZA was unable to weather a merger storm in 1999. The company abandoned a $7.3 billion purchase of North Chicago-based Abbott Laboratories after the Federal Trade Commission presented antitrust concerns, Liu said. The ALZA/Johnson & Johnson merger still needs the approval of the European Union merger control regulation and clearance under the Hart-Scott-Rodino Antitrust Improvements Act, but both spokesman expressed confidence that the merger would sail through the approval process.

Although the merger had been rumored for several weeks, Andrews would not comment on when the companies' boards of directors forged plans to merge.

In addition, the structure of the new partnership between the two companies has not yet been worked out, Andrews said. Johnson & Johnson Vice Chairman William Weldon and ALZA CEO Ernest Mario are expected to meet over the next month to iron out institutional details. However, Andrews said, "Each [Johnson & Johnson company] has its own management structure and mission inside the health care industry, and [the ALZA merger] will be similar to that. We'll work closely with [ALZA] management and they'll be under the Johnson & Johnson umbrella."

At Johnson & Johnson's corporate headquarters in New Brunswick, Andrews said the mood was joyful. "It's an exciting merger of two strong companies," he said.