Johnson & Johnson Confirms Alza Merger

It's official: Johnson & Johnson (JNJ Quote - Cramer on JNJ - Stock Picks) has agreed to buy Alza (AZA Quote - Cramer on AZA - Stock Picks) for $10.5 billion in stock. The health care products giant said the acquisition would dilute its 2001 and 2002 earnings and told analysts to write down their 2001 estimates by 10 cents a share.

According to the terms of the deal, each Alza share will be exchanged for 0.49 shares of J&J. The deal is subject to antitrust and European Union merger control regulations, as well as the approval of Alza's shareholders.

Tuesday's announcement confirms Monday's reports, which said the negotiations were at a "delicate stage." Nonetheless, the market rallied around Alza's shares, sending them up 29% to close at $38.75 Monday on the New York Stock Exchange . J&J shares closed Monday at $85.38.

Indeed, analysts and investors alike have touted the merits of J&J's buy, though it remains to be seen if they agree with the pricing of the deal. TheStreet.com's Jim Cramer wrote about the J&J's move Monday.

In a prepared statement Tuesday, J&J said the deal, which is expected to close by the early part of the third quarter, would dilute its 2001 earnings by 14 cents a share, and 2002 earnings by 5 cents a share. But because of the underlying strength of its business, J&J said it could "fund a portion of the impact" of the merger, reducing the its effect on earnings to 10 cents a share in 2001 and to zero in 2002. According to earnings tracker Thomson Financial/First Call, analysts on average expect 2001 earnings of $3.84 a share, compared with $3.42 a share in 2000, and a forecast of $4.35 a share in 2002.

"Alza will bring us significant new product opportunities and will enable us to extend product life-cycles. Products and technologies from Alza will enhance existing Johnson & Johnson growth platforms in areas that include oncology, women's health, urology, pain management and the central nervous system," J&J board chairman and chief executive officer Ralph Larsen said.

J&J also said that Alza will retain its name and management as a free-standing unit and that J&J plans to continue to develop new products based on Alza's drug delivery technologies.