updated 12/16/2004 5:00:19 PM ET 2004-12-16T22:00:19

Johnson & Johnson said on Wednesday that it will acquire device manufacturer Guidant Corp. for $25.4 billion. Under the terms of the deal announced on Wednesday, each Guidant share will be exchanged for $30.40 in cash and $45.60 in Johnson and Johnson stock.

Indianapolis-based Guidant makes pacemakers and cardiac defibrillators that will complement J&J's products and services in cardiology and medical devices.

Guidant shareholders still must approve the acquisition, the largest business deal in Johnson & Johnson's 118-year history.

Guidant, which was spun off by Eli Lilly and Co. in 1994, capitalized on breakthroughs in heart stents and pacemaker-defibrillator technology to become one of the world's top medical device makers.

Analysts said Johnson & Johnson, based in New Brunswick, N.J., apparently wanted to acquire Guidant for the pacemakers and defibrillators. Guidant's heart stent business also was attractive, although its failure to develop a drug-coated version put it far behind Johnson & Johnson and Boston Scientific.

Messages seeking comment were left Wednesday by The Associated Press for Guidant spokesman Steve Tragash.

J&J owns a stent-producing subsidiary, Cordis Corp., which would join Guidant as part of the new cardiovascular device unit within Johnson & Johnson. The unit will be named Guidant while the Cordis name will be kept for select businesses within the franchise, Johnson & Johnson.

"The combination of these businesses will enable us to bring innovative new therapies to patients and their physicians in this very important and fast growing therapeutic area," said William C. Weldon, chairman and chief executive officer of Johnson & Johnson.

"Bringing Guidant into the Johnson & Johnson family of companies builds on our history of strategic acquisitions and partnerships that provide a foundation for sustained leadership and growth."

Ronald W. Dollens will remain president and CEO of Guidant until the transaction has closed.

"We strongly believe that this exciting collaboration will benefit patients, customers, employees and shareholders," Dollens said.

Most of Guidant's 12,000 employees work in Minnesota and California, but it also has operations in Ireland and Puerto Rico. The company employs about 150 people at its headquarters in downtown Indianapolis.

Wall Street has been abuzz for months with talk of the negotiations.

Guidant's lucrative cardiovascular and defibrillator businesses offers J&J sales and earning growth at a time when the health care giant's pharmaceutical business is entering a transitional period, analysts said. J&J's painkiller Duragesic and its attention deficit disorder drug Concerta both could face generic competition next year after combined sales this year expected to reach $2.7 billion.

J&J earned $2.34 billion on revenue of $11.6 billion in the third quarter. Guidant earned $154 million on revenue of $925 million in the quarter.

John Putnam, a senior vice president and analyst at Stanford Financial Group in Boca Raton, Fla., questioned earlier this week what J&J would have to gain from acquiring Guidant.

"What's questionable is what J&J is really buying here," he said. "They're obviously buying a big franchise, a cardiac rhythm management business, a growth area obviously, but even so, it's not going to be change they're overall growth rate that much.

"Part of JJ's problem is that it's over a $40 billion company in terms of annual revenues, so just think what it takes to make it grows 10 percent is an increase of $4 billion on an annual basis. That's a lot a new business acquired, and new sales, for them to maintain their growth image."

Guidant's implantable defibrillators racked up $445 million in sales during the third quarter, and Guidant told stock analysts recently that the worldwide market for the devices grew 25 percent through the first nine months of this year.

The company also has said it expects to profit from a proposal by the Centers for Medicare and Medicaid Services to expand coverage of defibrillators to hundreds of thousands patients.

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