The company may look at deals worth more than $10 billion to compensate for a lack of organic growth and to provide an outlet for its steady buildup of cash.
In a note to investors, Morgan Stanley's David Lewis says Johnson & Johnson may be looking at consumer deals outside the U.S., along with buys in medical devices and diagnostics. And as Bloomberg points out, the company had a $27.7 billion stash of cash and short-term investments at the end of 2010--ample capital for a shopping foray.
Plus, J&J's 2010 results weren't so hot; sales were mostly stagnant at $61.6 billion after a year of recalls and other manufacturing troubles within its consumer health unit. "J&J's lackluster organic growth, limited leverage opportunities and growing cash hoard increasingly point to the possibility" that the company would be shopping for bigger deals, Lewis says. "A large acquisition ($10+ billion) may be a preferred avenue to bolster J&J's growth profile."
Over the past five years, J&J has announced 52 deals with an average size of $669 million; its biggest recent deal was the $16.6 billion buyout of Pfizer's consumer health business in 2006, Bloomberg notes.
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