Boston Scientific Corp. on Sunday made a definitive $25 billion offer for rival medical device maker Guidant Corp., standing by an earlier proposal that aims to scuttle a standing but smaller bid for Guidant from Johnson & Johnson.
Boston Scientific’s offer is largely in line with its initial Dec. 5 proposal, but includes a new and related deal in which the Natick, Mass.-based company will sell Guidant’s vascular intervention and endovascular business to Abbott Laboratories Inc. if its Guidant acquisition is successful.
Boston Scientific said the move is aimed at ensuring antitrust approval for its proposed purchase of Guidant. Boston Scientific also said it will share rights to Guidant’s drug-coated stent program with Abbott Park, Ill.-based Abbott Labs.
Boston Scientific would receive $3.8 billion for Guidant’s vascular business, plus an extra $500 million when U.S. and Japanese regulators approve the Guidant drug-coated stents. Abbott also would give Boston Scientific a $700 million loan, payable over five years.
Sunday’s offer from Boston Scientific represents the latest salvo in a bidding war for Guidant’s lucrative pacemaker and defibrillator business that was set off when Boston Scientific made its surprise initial offer. The company hopes to derail a process begun a year ago when J&J made its first offer for Guidant — a bid J&J reduced in November after a spate of product recalls and other negative news at Guidant.
Boston Scientific’s latest proposal to create the world’s largest cardiovascular products company came after its executives concluded nearly four weeks of due diligence talks with Indianapolis-based Guidant to firm up the initial offer.
A Guidant spokesman did not immediately return calls seeking comment.
Boston Scientific’s latest proposal mirrors its initial half cash, half stock offer to buy Indianapolis-based Guidant for about $72 per share That compares with the roughly $64-a-share price in New Brunswick, N.J.-based J&J’s offer, which totals $21.5 billion, down from J&J’s initial $25.4 billion offer in its initial proposal in December 2004.
Boston Scientific said its offer represents a 12 percent premium over the current J&J offer of $33.25 in cash and 0.493 shares of J&J common stock.
“Our due diligence confirmed our belief in the underlying value of the company and the significant long-term potential we see in a Boston Scientific/Guidant combination,” Boston Scientific’s president and CEO, Jim Tobin, said in a statement Sunday.
Guidant shareholders are due to vote on the J&J offer on Jan.
31. Boston Scientific hopes it can reach a definitive agreement with Guidant’s management before then, which could lead J&J to sweeten its offer or possibly walk away. Guidant’s board has yet to recommend for or against Boston Scientific’s initial offer, but has recommended shareholders vote for J&J’s definitive proposal.
Legal experts on mergers have said that if Guidant determines that Boston Scientific’s offer is valid and good for the company, Johnson & Johnson will have five days to submit a counter offer.
After Boston Scientific’s initial offer, several industry analysts said they expected that proposal to prevail because its bid was $3.5 billion larger than J&J’s.
However, analysts have suggested some Guidant shareholders could see J&J’s offer as superior because it would align Guidant with a far larger company offering a more diverse range of products than Boston Scientific, which posted $5.6 billion in revenue in 2004 to J&J’s $47.3 billion.
Boston Scientific’s offer also would quadruple the company’s debt load — from about $2.5 billion as of Sept. 30 to about $10.5 billion — although the company says it has arranged financing. And acceptance of Boston Scientific’s proposal would require payment of a $625 million break-up penalty to J&J.
Boston Scientific and J&J are both eager to jump into the $10 billion global market for pacemakers and implantable defibrillators as others work to topple the two companies from their leading positions in the field of drug-coated heart stents, metal-mesh devices that keep coronary arteries propped open after surgery to clear blockages.
That business has helped Boston Scientific more than double its earnings in each of 2004’s four quarters and take a narrow lead in drug-coated stents 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.
J&J cut its offer for Guidant after Guidant recalled or issued warnings about nearly 300,000 of its pacemakers and implantable heart defibrillators. So far, seven deaths have been linked to faulty defibrillators. On Dec. 23, Guidant adjusted its fourth-quarter revenue estimates below Wall Street expectations after the recalls hurt the company’s market share greater than expected.