J&J, Boston Scientific Battle for Guidant

Monday, January 9th 2006, 10:07 am
By: News On 6

INDIANAPOLIS (AP) _ After more than a year of courtship, Johnson & Johnson has again sweetened its bid for Guidant but rival Boston Scientific Corp. isn't ceding ground in its quest to acquire the medical device maker.

Guidant Corp.'s board unanimously endorsed a new, $23.2 billion bid from J&J late Wednesday and recommended its shareholders approve it Jan. 31 when they gather to vote. Boston Scientific immediately said it would continue working to advance its own $25 billion offer.

The latest Johnson & Johnson acquisition proposal _ its third _ calls for the company to pay $37.25 in cash and 0.493 shares of its common stock for each outstanding Guidant share.

Boston Scientific's cash-and-stock offer includes $36 in cash, giving Guidant shareholders slightly more cash with J&J's newest bid.

That leaves J&J and Guidant to muster support for a deal at a share price below where Guidant currently trades _ and with a dogged rival possibly willing to pay even more.

``It is clear that our $72 per share offer is superior to the $68.06 per share now being offered by Johnson & Johnson,'' Boston Scientific said in a short statement Wednesday. ``Our discussions with Guidant are ongoing. We intend to vigorously pursue this transaction to its completion.''

Guidant shares fell 25 cents to $70.19 in early trading Thursday on the New York Stock Exchange. Johnson & Johnson shares lost 61 cents to $61.89, while Boston Scientific shares slipped 16 cents to $25.25.

Guidant Chairman and CEO James Cornelius said the J&J deal would provide certainty for Guidant's shareholders and employees.

In December 2004, J&J offered $25.4 billion for Guidant, but slashed it to $21.5 billion 11 months later because of Guidant's product recalls and regulatory investigations.

Since June, Guidant has recalled or issued safety warnings about 88,000 heart defibrillators and almost 200,000 pacemakers. The company also faces numerous lawsuits. Last month, Guidant adjusted its fourth-quarter revenue estimates below Wall Street expectations after the recalls hurt the Indianapolis company's market share more than expected.

Natick, Mass.-based Boston Scientific announced its unsolicited offer to buy Guidant in early December and officially presented the deal to Guidant's board Sunday. In its proposal, Boston Scientific said it would sell part of Guidant's business to Abbott Laboratories Inc. for more than $4 billion.

J&J has argued that its larger size _ it posted $47 billion in 2004 revenue compared with Boston Scientific's $5.6 billion _ gives it greater resources to fix Guidant's problems and sustain long-term growth.

``Together with Guidant, we have spent more than a year planning an integration that will create an extraordinary cardiovascular device business that can deliver better medical treatment sooner to millions of patients,'' J&J's chairman and CEO, William C. Weldon, said in a statement.

``We strongly believe that our union with Guidant is the only one that can deliver on that promise, and create lasting value for shareholders of both companies.''

J&J, based in New Brunswick, N.J., is a close No. 2 behind Boston Scientific in the market for drug-coated stents _ metal-mesh devices that are coated with drugs to prevent scar tissue from creating new blockages after artery-clearing surgery.

With new entrants expected into that field, Boston Scientific and J&J both see Guidant's business as a crucial element in the expanding $10 billion market for pacemakers and implantable defibrillators.

The stent business has helped Boston Scientific more than double its earnings in 2004 and take a narrow lead in that market over J&J. But those profits, along with Boston Scientific's stock price, have since dwindled as a J&J stent has eroded some of Boston Scientific's leading position for its stent.

Earlier this week, at least one major Guidant shareholder called Boston Scientific's offer superior.

``We strongly urge Guidant's board to recognize the superiority of Boston Scientific's offer versus J&J's and, just as importantly, to ensure a level playing field should J&J increase its offer,'' Ivan Krsticevic, senior portfolio manager at Elliott Associates LP, wrote in a letter to Guidant's board this week. ``Anything less than $71 per share from J&J should not be accepted, in our view.''