Johnson & Johnson Signs Pact to Acquire Part of Inverness Medical

Johnson & Johnson(JNJ Quote - Cramer on JNJ - Stock Picks), as expected, is acquiring a part of Inverness Medical(IMA Quote - Cramer on IMA - Stock Picks), a company that develops products for treating diabetes.

The companies announced merger talks on May 9 and signed the deal today. Johnson & Johnson is buying Inverness Medical's diabetes care products business, while the remaining women's health, nutritional supplements and clinical diagnostics businesses will be spun off into a separate, publicly held company.

Inverness shareholders will receive Johnson & Johnson common stock valued at $35 a share, plus common stock in the new company, for each share of Inverness. The net equity value of the deal is about $1.3 billion.

Shares of Johnson & Johnson fell $1.17, or 1%, to $97.83, while Inverness rose $1.33, or 3.8%, to $36.28.

Morningstar analyst Amy Arnott said Johnson & Johnson is basically buying its main supplier of diabetes care products. Inverness makes blood glucose monitoring machines that are sold under the J&J label.

"Inverness has $170 million in sales in 2000, so paying seven to eight times for the company is in line with what you'd expect, especially because Johnson & Johnson is not taking on debt," she said, adding that diabetes care is a relatively small part of the Johnson & Johnson business, but one that is a key growth opportunity. Arnott's firm doesn't place ratings on companies or do underwriting, but she has been generally positive about Johnson & Johnson's consistent earnings growth.