On April 5, 2024, Johnson & Johnson (NYSE: JNJ) announced its intent to acquire Shockwave Medical Inc. (NASDAQ: SWAV) for $13.1 billion. Under the terms of the proposed deal, JNJ will pay $335 per share, which is a 4.75% premium compared to Shockwave's closing price on April 4, 2024. As of mid-day trading on April 8, 2024, JNJ stock is flat, and SWAV stock is up approximately 1.8%.
The deal, which the company says will be financed with cash and debt, enhances JNJ's position in the rapidly growing cardiovascular intervention market. The $13.1 billion acquisition is only about 3.5% of the company's market cap. That allows investors to focus on the upside, of which there appears to be plenty for investors to consider.
One of the prizes for Shockwave Medical is its first-to-market intravascular lithotripsy technology. Lithotripsy technology is commonly used to break up kidney stones, which are formed by calcium buildup. Shockwave's approach is "a catheter-based treatment for calcified arterial lesions, which can reduce blood flow and cause pain or heart attacks."
The deal will enhance Johson & Johnson's leadership position in the MedTech sector. Johnson & Johnson CEO Joaquin Duato remarked, "With our focus on Innovative Medicine and MedTech, Johnson & Johnson has a long history of tackling cardiovascular disease – the leading cause of death globally. The acquisition of Shockwave and its leading IVL technology provides a unique opportunity to accelerate our impact in cardiovascular intervention and drive greater value for patients, shareholders and health systems."
Will This Deal Be the Jolt JNJ Stock Needs?
If you look at the JNJ stock price over any length of time, you see a consistent move higher. The company is known for delivering long-term value for shareholders through over 60 consecutive years of dividend growth and returning over 60% of its free cash flow to shareholders in the last five years.
However, in the last five years, the stock is up just 11.87%. That's over 10% lower than the S&P 500 average of 14.3% per year over the same period.
And, since August 2023, the stock has been in a steady downtrend. JNJ stock is down 7.88% in the last 12 months and 2.93% through the first three months of 2024. Both numbers are far below the average of pharmaceutical stocks.
During this time, Johnson & Johnson has been embroiled in several lawsuits. And in 2023, the pharmaceutical company spun off Kenvue Inc. (NYSE: KVUE). Initially, JNJ stock got a boost from the spinoff but has since been trading in a range.
However, The weak performance may say less about Johnson & Johnson and more about companies like Novo Nordisk A/S (NYSE: NVO) and Eli Lilly & Co. (NYSE: LLY), drawing investor attention due to their GLP-1 weight loss treatments. Other companies are making strong inroads into the oncology market.
As investors know, the pharmaceutical industry is a what-have-you-done-for-me-lately business. The acquisition of Shockwave, if approved by Shockwave shareholders, will give investors more value for their shares. Investors should wait for more information when Johnson & Johnson reports earnings on April 16, 2024.
