J&J says it has plenty of firepower for M&A, buyback or no buyback

Johnson & Johnson ($JNJ) may be embarking on a $10 billion share repurchase program, but that doesn't mean it doesn't have room to make deals.

Johnson & Johnson CFO Dominic Caruso

"I wouldn't interpret the $10 billion share buyback as impacting our appetite for scale of any size in M&A at all," CFO Dominic Caruso told investors on the company's Q3 conference call on Tuesday. "Our appetite for M&A of any scale has entirely to do with whether or not the acquisition is going to create value for shareholders."

J&J ended the quarter with $37 billion in cash, equivalents and short-term investments, meaning it has the wherewithal to make a big buy. But the way Guggenheim Securities analyst Tony Butler sees it, the buyback is a signal that the company doesn't have its sights set on one big fish.

"They're saying, 'We need to do something here because we have this buildup of cash and we need to deploy it in some fashion because we don't have a ready asset we can go out and buy,'" Butler told Bloomberg.

That idea runs contrary to those U.K. traders had over the summer, when they set the rumor mill abuzz with talk of a GlaxoSmithKline ($GSK) takeover.

But according to Gabelli & Co. portfolio manager Jeff Jonas, it's better this way. The company should focus on smaller deals that bring it products to develop, he said--the kind that brought it successful cancer drugs Velcade and Zytiga, Butler added.

Meanwhile, if J&J does make any buys, they would add to the 268-deal tally the pharma industry posted through three quarters this year, according to Mergermarket. Together, those transactions have been worth $231.5 billion, a 93.4% increase over the combined value of pharma deals during the same period last year.

- see the call transcript at Seeking Alpha
- get more from Bloomberg

Special Reports: Top 15 pharma companies by 2014 revenue - J&J | Pharma's top 10 M&A deals of 2014

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