A merger makes sense but J&J needs to come up with a higher price tag

A MERGER between Smith & Nephew (S&N) and Johnson & Johnson (J&J) would certainly make sense. The orthopaedics business has struggled in the wake of the recession, and S&N is no exception.

Sales at its flagship hip reconstruction business fell in the first nine months of 2010 compared to a year earlier, largely due to price pressure in the US and EU.

Its interests in endoscopy and advanced wound management have helped soften the blow, although not entirely.

A merged S&N and J&J would have a combined market share of between 35 and 37 per cent (compared to S&N’s 10 to 17 per cent) in hips and knees, giving the firm a market leading position ahead of No. 1 player Zimmer, on 22 to 28 per cent. Now J&J needs to come up with a more sensible price tag.