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J&J Buys Synthes

Johnson & Johnson is purchasing medical device maker Synthes Inc. for $21.3 billion in the largest deal ever by J&J. This move will further – to say the least – J&J’s effort to capture more market share in the surgical trauma equipment and orthopedic implant markets.

A few months ago (I couldn’t find the post I did), I wrote that you should buy J&J stock because the number of recalls/screw-ups just could not continue at the frenetic pace it was maintaining. Well, I was wrong about the frenetic pace part of it but; the stock is continuing to rise which furthers my Pet Theory #853,034: product liability lawyers overestimate how much litigation matters to these huge pharma companies. J&J sets aside nearly a billion dollars for the Depuy hip replacements and we think that must be a big deal. But it is simply an accounting error to J&J in a deal of this size.