Boston Scientific wins battle for Guidant

Wednesday, January 25th 2006, 8:41 am
By: News On 6

INDIANAPOLIS (AP) _ Boston Scientific Corp. announced Wednesday it was acquiring Guidant Corp. for about $27.2 billion in cash and stock, ending a nearly two-month bidding war against rival Johnson & Johnson for the heart device maker.

Natick, Mass.-based Boston Scientific and J&J have been competing to buy Guidant since early December, hoping for a stake in the fast-growing $10.3 billion cardiac rhythm management market. The battle between the two companies raged despite months of recalls and safety warnings by Guidant about defects in its pacemakers and defibrillators.

``We believe the transaction and the strategic rationale for this combination are in the best interests of our patients, employees, customers and shareholders _ reflecting the full value of our firm,'' Jim Cornelius, chief executive at the Indianapolis-based Guidant, said in a statement. ``The combination of these two companies provides faster, more consistent revenue growth opportunities to shareholders.''

Last week, Guidant's board said Boston Scientific's $80-per-share offer was favorable to a lower, $71-per-share offer from J&J. A five-day period for J&J to sweeten its $24.2 billion bid expired at midnight.

New Brunswick, N.J.-based J&J acknowledged Wednesday that Guidant had terminated their agreement. It said that topping its last offer would not have been in the best interest of its shareholders.

The Boston Scientific acquisition of Guidant must be approved by federal regulators as well as shareholders at each company. Boston Scientific officials said they expect the deal to close in the first quarter.

``We are excited about combining the talent and experience of Boston Scientific and Guidant employees,'' Jim Tobin, Boston Scientific's president and chief executive, said in a statement. ``We look forward to working with Guidant to complete the transaction quickly and to creating a global leader in cardiovascular devices.''

The combined companies could have 2006 revenue of nearly $9 billion.

``I think it's good for Guidant shareholders,'' said Jan Wald, an analyst with A.G. Edwards & Sons. ``I think, even though it's dilutive, and perhaps dilutive for a long time, it's a good strategic move on Boston Scientific's part.''

In filings with the Securities and Exchange Commission this month, Boston Scientific said Guidant's pacemakers and defibrillators could account for nearly one-quarter of pro forma sales. The heart device market is expected to grow by nearly 25 percent by 2008.

That growth will likely offset any of Guidant's legal liability _ estimated to be as high as $2 billion _ that Boston Scientific may have to absorb.

Guidant has been plagued by dozens of lawsuits as well as regulatory investigations following recalls and safety advisories about some of its products.

In the past seven months, Guidant has alerted physicians and patients about problems in about 88,000 defibrillators and more than 200,000 pacemakers. At least seven deaths have been linked the faulty devices.

Boston Scientific will pay $80 per share for Guidant, or $42 in cash and $38 in Boston Scientific stock under the agreement with Guidant.

It will also pay J&J a $705 million break-up fee owed by Guidant for ending its earlier agreement with J&J.

J&J had originally offered $25.4 billion for Guidant in December 2004 but started to express second thoughts following a series of Guidant product recalls last summer. Guidant sued to close the deal and the companies agreed to a revised J&J offer of $21.5 billion in November.

In December 2005, Boston Scientific entered the picture and offered $25 billion for Guidant, triggering a bidding war.

John Putnam, an analyst with Stanford Group Co. said a higher bid by J&J would have hindered the health products company's ability to negotiate future acquisitions.

``For them to bid more than they originally bid would have signaled to other potential acquisitions that they didn't have the financial discipline they've always been known for,'' he said.

Several major Guidant shareholders had been pushing the company's board of directors to accept Boston Scientific's offer.

Boston Scientific plans to sell Guidant's line of drug-coated stents to Abbott Laboratories for $6.4 billion in cash. That includes a $900 million loan and Abbott's agreement to acquire $1.4 billion of Boston Scientific common stock.