Smith & Nephew talks with J&J on orthopaedics deal fail over CEO role, source says  

By Sabrina Valle

NEW YORK, Oct 23 (Reuters) - Smith & Nephew held talks to merge with Johnson & Johnson's orthopaedics division but the discussions collapsed over who would run the enlarged group, a person familiar with the matter told Reuters on Friday.

British medical devices firm Smith & Nephew and US group J&J both declined to comment on an earlier Financial Times report which said the merger talks had been at an advanced stage, with both sides aligned on the main financial terms and structure.

The talks fell through at the last minute after Smith & Nephew refused to agree to its former CEO Namal Nawana leading the merged business, the FT report said.

"The combination would have created a rich portfolio across knee and hip implants, while filling in musculoskeletal gaps in both parties’ offering," said John West, global head of analysis at Mergermarket.

Smith & Nephew approached J&J earlier this year with an offer valuing the US drugmaker's hip and knee replacement unit at as much as $22 billion, almost double Smith & Nephew's £9.4 billion ($12.58 billion) market capitalisation, the FT said.

J&J announced plans a year ago to separate its orthopaedics business into a standalone company named DePuy Synthes. The unit, which was reportedly seeking a $20 billion price tag, has drawn private equity interest but no deal has materialised.

Last week, J&J said it was leaning towards a spin-off of the unit, with a separation targeted for mid-2027.

MANAGEMENT DIRECTION AND TERMS

Nawana, who was Smith & Nephew CEO for 18 months before stepping down in 2019, now heads J&J's orthopaedics division.

He was the US drugmaker's choice to lead the merged group, but Smith & Nephew insisted its present CEO Deepak Nath remain in charge, causing J&J's interest to cool, the FT reported.

The companies had been eyeing a mid-October announcement before talks ended several weeks ago, the FT said, adding that J&J shareholders would have owned 50.1% of the combined company.

Smith & Nephew has been facing weak growth, and after three years of cost cuts and sales initiatives, it is banking on newer products to shore up revenue.

Mergermarket's West said it would not be surprising if the companies eventually returned to the negotiating table.

($1 = 0.7470 pounds)

(Reporting by Sabrina Valle in New York and Yamini Kalia, Pushkala Aripaka, Atharva Singh and Unnamalai L in Bengaluru; Editing by Mrigank Dhaniwala, Susan Fenton and Alexander Smith)