Johnson & Johnson: The Sleeping Giant is Making These Big Moves

Pharmaceutical and health care (NYSE:XLV) leviathan Johnson & Johnson (NYSE:JNJ) recently added some bulk to its swagger after earnings, announcing its acquisition of orthopedic device leader Synthes (SYST) for the cool price of 21.3 Billion dollars. Bloomberg speculates the move may force JNJ rivals Stryker Corp. (NYSE:SYK) and Zimmer Holdings Inc. (NYSE:ZMH) to respond with acquisitions of their own to remain competitive in the industry.

JNJ’s purchase places the firm at the flagship of the market for tools treating bone fractures and traumas, giving it a 55% share (up from 5% prior to acquiring Synthes). Now that’s a “family” company.

The move will likely send Stryker and Zimmer scrambling to make similar purchases, as the risk of letting JNJ eat up a larger swath of the rapidly expanding segment (JNJ projects a 7% annual growth rate in the medical tools market) may prove too intimidating to go unchecked.

According to J&J CEO William C. Weldon, orthopedics, “is probably the largest opportunity in the whole medical device area.” Its likely that Stryker and Zimmer agree, so expect them to try and swallow up some smaller orthopedics companies in the short run. Watch out for these likely targets: ArthroCare Corporation (NASDAQ:ARTC), BioMimetic Therapeutics (NASDAQ:BMTI), and Wright Medical Group (NASDAQ:WMGI).

Not only did JNJ shake things up at yesterday’s annual meeting by showing off its latest acquisition, the firm also decided to hike its quarterly dividend 5.6%, to $0.57/share, – making the indicated dividend an annualized $2.28 vs. previous $2.16.

JNJ shareholders have good reason to start regaining confidence.

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