Boston Scientific Corp. made an unexpected, $25 billion takeover offer Monday for the troubled medical device maker Guidant Corp., more than $3 billion more than what Johnson & Johnson agreed to pay for Guidant last month.
Guidant shares climbed more than 8 percent in midday trading.
Boston Scientific, which makes heart devices, offered in a letter to Guidant’s chairman to pay a combination of cash and stock worth about $72 per Guidant share. It said that is nearly 14 percent above Friday’s value of J&J’s revised cash-and-stock deal for Guidant.
The offer comes nearly a year after J&J said it would buy the Indianapolis medical-device maker for $25.4 billion. But J&J cut its offer by nearly $4 billion after a series of product recalls by Guidant, and Guidant management accepted the lower price last month.
Boston Scientific executives said the prospect of entering the lucrative $10 billion market for implantable pacemakers and defibrillators by purchasing Guidant outweighs the legal risks posed by Guidant’s recent problems.
“We understand there have been some recent issues, but we believe they are manageable,” Boston Scientific Chief Operating Officer Paul LaViolette said in an interview with The Associated Press.
Indianapolis-based Guidant said it had received the proposal and its board would consider it. “Guidant will have no further comment on this matter at this time,” it said in a statement.
A Johnson & Johnson spokesman did not return three calls seeking comment Monday.
Boston Scientific said it was prepared to sell Guidant’s stent business to satisfy regulators but wanted to retain some shared rights in Guidant’s drug-eluting stent program, which has not yet brought a product to market. Boston Scientific has one of the best-selling drug-eluting stents on the market in Taxus, which competes with the Cypher stent made by J&J’s Cordis Corp. unit. Stents are metal-mesh devices surgically inserted to keep coronary arteries propped open after surgery to clear blockages.
“We are prepared to divest them. We think that will address any competition concerns,” LaViolette said in the telephone interview.
Attractive despite recalls
Jeffries & Co. analyst Ryan Rauch said Guidant remains attractive despite the recalls — perhaps even more so to Boston Scientific, which has seen its profits dwindle recently.
“Guidant would shore up Boston Scientific’s 2008 pipeline, if they’re willing to take significant dilution to their shares in the short-term,” Rauch said.
John Putnam, an analyst with Stanford Group Co., said Guidant must give the new offer serious consideration. Not only is Boston Scientific offering more money, but such an acquisition would be more like a merger of equals. A potential pitfall for Guidant would be the cost of any breakup penalty in its deal with J&J. In the original deal, the cost was $750 million, but the companies have not yet filed an amended agreement with regulators.
“Strategically, it’s a better fit for Guidant being with Boston Scientific than being with J&J,” Putnam said. J&J also would be hard pressed to enter a bidding war, after rancorous negotiations that resulted in its lower price for Guidant, he said. “It’s going to be tough for J&J to make another offer that’s close to Boston Scientific.”
Johnson & Johnson and Guidant renegotiated their deal when J&J considered pulling its original offer of $76 a share made last December after Guidant suffered through the recall of thousands of implantable heart devices over the summer.
Since June, Guidant has recalled or issued warnings about 88,000 heart defibrillators — including its top seller, the Contak Renewal 3 — and almost 200,000 pacemakers because of reported malfunctions.
Guidant had filed a federal lawsuit to force J&J, based in New Brunswick, N.J., to complete its original takeover agreement.
J&J renegotiated the original deal and Guidant accepted on Nov.
15. At the time, the J&J offer was worth $63.08 per Guidant share, or $21.5 billion, but the value has since risen to about $63.43 per share, based Friday’s closing price of J&J stock. Johnson & Johnson makes an assortment of medical and health care products.
Richard Langan, a merger expert and a partner with the law firm Nixon Peabody in New York, said that under the original agreement with J&J, once Guidant’s board determined Boston Scientific was offering a better deal, J&J had five business days to come back with a competing offer.
Analyst Rauch said he did not expect Guidant’s shareholders would embrace J&J’s offer over Boston Scientific’s, given the premium and the frayed relations between Guidant and J&J. Rauch said J&J was not likely to sweeten its offer.
“There’s no love lost between Guidant and J&J,” Rauch said. “I believe J&J will not come back into the dance at a higher price.”
The Boston Scientific offer consists of $36 in cash and $36 worth of its shares for each share of Guidant stock. J&J is offering $33.25 in cash and 0.493 share of Johnson & Johnson common stock for each Guidant share.
If Guidant accepts Boston Scientific’s offer over J&J’s, that could put pressure on J&J to make an offer to buy another medical devices maker, St. Paul, Minn.-based St. Jude Medical Inc., to compete against a Boston Scientific-Guidant combination, Rauch said.
Rauch said a Boston Scientific-Guidant deal could hurt Boston Scientific’s short-term share price because of the acquisition’s cost. But in the longer term the deal could help shore up Boston Scientific’s pipeline, which has yet to produce a potential blockbuster product to match the sales boost the company has enjoyed since the Taxus stent reached the U.S. market in March 2004.