Smith & Nephew orthopaedics deal talks with J&J fail over CEO choice, source says

Smith & Nephew, J&J Merger Talks Collapse Over CEO Leadership Dispute

Merger Negotiations and Leadership Dispute

By Sabrina Valle

Background of the Merger Talks

NEW YORK, Oct 23 (Reuters) - Smith & Nephew held talks to merge with Johnson & Johnson's orthopaedics division but the discussions collapsed over who would run the enlarged group, a person familiar with the matter told Reuters on Friday.

British medical devices firm Smith & Nephew and US healthcare conglomerate J&J both declined to comment on an earlier Financial Times report that said the merger talks had been at an advanced stage, with both sides aligned on the main financial terms and structure.

Leadership Dispute Details

The talks fell through at the last minute after Smith & Nephew refused to agree to its former CEO Namal Nawana leading the merged business, the FT report said.

According to a person familiar with the matter, J&J was never prepared to pursue a transaction in which Smith & Nephew's Chief Executive Deepak Nath would serve as CEO of the combined company. Smith & Nephew was aware of that position, the person said, but the talks ultimately collapsed after it sought to have Nath lead the merged group.

Key Figures in the Negotiations

Nawana, who was Smith & Nephew's CEO for 18 months before stepping down in 2019, now heads J&J's orthopaedics division. He was J&J's preferred candidate to lead the combined business, the person added.

Financial Terms and Strategic Rationale

"The combination would have created a rich portfolio across knee and hip implants, while filling in musculoskeletal gaps in both parties’ offering," said John West, global head of analysis at Mergermarket.

Smith & Nephew approached J&J earlier this year with an offer valuing the US company's hip and knee replacement unit at as much as $22 billion, almost double Smith & Nephew's £9.4 billion ($12.58 billion) market value, the person said.

J&J's Orthopaedics Division and Future Plans

J&J announced plans a year ago to separate its orthopaedics business into a standalone company named DePuy Synthes. The unit, which was reportedly seeking a $20 billion price tag, has drawn private equity interest but no deal has materialised.

Last week, J&J said it was leaning toward a spinoff of the unit, with a separation targeted for mid-2027.

Management Direction and Terms

MANAGEMENT DIRECTION AND TERMS

The companies had been eyeing a mid-October announcement before talks ended several weeks ago, the FT said, adding that J&J shareholders would have owned 50.1% of the combined company.

Smith & Nephew's Position and Future Outlook

Smith & Nephew has been facing weak growth, and after three years of cost cuts and sales initiatives, it is banking on newer products to shore up revenue.

Mergermarket's West said it would not be surprising if the companies eventually returned to the negotiating table.

Financial Conversion and Reporting Credits

($1 = 0.7470 pounds)

(Reporting by Sabrina Valle in New York and Yamini Kalia, Pushkala Aripaka, Atharva Singh and Unnamalai L in Bengaluru; Editing by Susan Fenton, Alexander Smith and Bill Berkrot)