- The Washington Times - Monday, December 5, 2005

INDIANAPOLIS (AP) — Troubled Guidant Corp. drew a $25 billion offer yesterday from medical device rival Boston Scientific Corp., topping Johnson & Johnson’s watered-down bid by more than $3 billion.

Guidant’s once flagging stock rose $6.16, or nearly 10 percent, to close at $67.98 amid Wall Street’s speculation of a bidding war.

But market analysts said that Johnson & Johnson, which did not return repeated phone calls for comment, may not want Guidant enough to spend billions more for the Indianapolis-based maker of pacemakers, defibrillators and other devices, which has been beset by a series of recalls and by related regulatory investigations.

It was just three weeks ago that Guidant accepted a revised $21.5 billion proposal from Johnson & Johnson and stopped suing the health care products company to close on a year-old acquisition offer of $25.4 billion.

Boston Scientific, whose products include the top-selling cardiac stent Taxus, offered Guidant a combination of cash and stock worth about $72 per Guidant share — a 16 percent premium over Friday’s close. The prospect of entering the lucrative $10 billion international market for implantable pacemakers and defibrillators outweighed Guidant’s recent legal and regulatory woes.

“The primarily driver of our proposal is to increase Boston Scientific’s diversification and grow our cardiac-rhythm management business,” said Boston Scientific’s chief operating officer, Paul LaViolette.

Guidant’s original deal withJohnson & Johnson bogged down amid a series of recalls and warnings affecting nearly 200,000 pacemakers and about 88,000 defibrillators since June.

Dozens of shareholder and product liability lawsuits have ensued, costing Guidant more than a quarter of its value. Its stock plummeted to a low of $55.26 last month.

“We understand there have been some recent issues, but we believe they are manageable,” Mr. LaViolette said. “We are experienced with these issues.”

Guidant’s strengths outweigh its problems for Boston Scientific, which has seen its profits dwindle recently, Jefferies & Co. analyst Ryan Rauch said.

“Guidant would shore up Boston Scientific’s 2008 pipeline, if they’re willing to take significant dilution to their shares in the short term,” Mr. Rauch said.

Mr. Rauch said he did not expect Guidant’s shareholders to embrace Johnson & Johnson’s offer over Boston Scientific’s, given the premium and the frayed relations between Guidant and Johnson & Johnson. Mr. Rauch said the company was not likely to sweeten its offer.

“There’s no love lost between Guidant and J&J;,” Mr. Rauch said. “I believe J&J; will not come back into the dance at a higher price.”

Boston Scientific has faced its own problems, including a voluntary recall announced Friday of 18,000 vena cava filters, devices that are implanted in a vein that carries blood to the heart from the lower body.

A $600 million legal settlement led to a third-quarter loss of $269 million, and it also has had to contend with a federal inspection that found manufacturing problems.

A potential pitfall for Guidant would be the cost of any breakup penalty in its deal with Johnson & Johnson. The original deal set the cost at $750 million.

Guidant issued a terse statement that its board would take the Boston Scientific offer under consideration and that the company had no further comment.

Boston Scientific stock lost 98 cents, or 3.6 percent, to close at $26.35 on the New York Stock Exchange. Johnson & Johnson shares fell 16 cents to close at $61.05.

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