Under the reported proposal, J&J shareholders would have owned 50.1% of the combined company and Smith & Nephew holders the remaining 49.9%. J&J’s hip-and-knee operations were reportedly valued at up to $22 billion, while Smith & Nephew would have financed an approximately $10 billion cash payment to J&J with debt.
The Reverse Morris Trust fingerprints
The 50.1% stake strongly suggests a Reverse Morris Trust (RMT). In a typical RMT, a parent separates a business and merges it with another company, with the parent’s former shareholders retaining majority ownership of the combination to help preserve the intended tax treatment. Neither company has confirmed that this was the proposed structure or disclosed how a cross-border deal would have met the applicable tax requirements.
The debt-funded payment would have allowed J&J to receive substantial cash while its shareholders retained control of the combined orthopaedics business. It also would have left the combination bearing significant financing obligations, although the proposed debt allocation and pro forma balance sheet have not been published. The reported $22 billion figure offers a negotiating benchmark, rather than a confirmed equity value for a standalone DePuy Synthes.
A CEO dispute, and a spinoff still on the table
The Financial Times reported that J&J wanted Namal Nawana, its orthopaedics chief and a former Smith & Nephew CEO, to run the merged company. Smith & Nephew insisted on retaining its current chief executive, Deepak Nath; Reuters reported that Smith & Nephew declined to comment and J&J did not provide a comment.
As we reported October 14, J&J now favors a standalone DePuy Synthes spinoff, with a target of mid-2027, while continuing to evaluate alternatives. The failed negotiations show how far another structure apparently advanced; they do not establish that an RMT remains under consideration or that either company will return to the table. Investors still need the definitive separation structure, balance sheet and tax terms before comparing the standalone business with this abandoned proposal.