M&A

In Guidant Battle, It’s J&J’s Serve

The battle for the maker of cardiac devices is turning into one of those back-and-forth affairs that could go either way.
Stephen TaubJanuary 18, 2006

Just when it seemed Johnson & Johnson would finally prevail in the battle for Guidant Corp., a maker of cardiac devices, Boston Scientific Corp. staged a comeback. Boston Scientific, the largest maker of stents, weighed in yesterday with a higher offer of $27.2 billion, or $80 per share, and gave Guidant a 5 p.m. deadline.

The new bid was a whopping $9 a share more than J&J’s most recent offer, made last Friday — nearly $3 billion more, all told.

Well, lo and behold, Guidant fired off a press release calling Boston Scientific’s offer “superior,” without elaborating.

It now appears that Boston Scientific, with a fair amount of help from its partner Abbott Laboratories, will shell out $80 per share, $42 in cash and $38 in Boston Scientific common stock, subject to a collar.

Guidant shareholders are scheduled to vote on the agreement at a special meeting on January 31. Under the terms of its merger agreement with Johnson & Johnson, however, Guidant must give J&J five business days to weigh in with a higher offer.

In a statement, J&J acknowledged Boston Scientific’s offer as “superior” but added that it is “a highly dilutive and leveraged transaction based on extremely aggressive business projections. J&J asserted that the deal will not provide $80 per share in value to Guidant shareholders.

“I would expect the next chapter in this story to be the abandonment of the deal by J&J,” Eli Kammerman, an analyst with Cathay Financial Inc., told Bloomberg. “For J&J I think it’s positive because the dire need for the business by Boston is outweighing financial rationality.”

If Guidant goes with Boston Scientific, it must pay J&J a $705 million breakup fee, the wire service also noted.

Boston Scientific would receive $6.4 billion in cash from Abbott on or around the closing date of the transaction. That figure includes $4.1 billion for Abbott’s acquisition of Guidant’s vascular-device business. Abbott announced that this acquisition would be slightly dilutive to ongoing earnings per share in 2006 and accretive thereafter.

Abbott would also pay Boston Scientific $250 million when the Food and Drug Administration approves a particular Guidant’s stent, and $250 million more upon a similar approval in Japan.

In addition, contingent upon the closing of the Guidant acquisition, Abbott will provide Boston Scientific with a five-year, $900 million interest-bearing loan, and it would also purchase $1.4 billion of Boston Scientific common stock. This purchase would represent approximately 4 percent of the combined company.

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