The deadline for Guidant Corp. to respond to Boston Scientific Corp.’s latest $25 billion buyout offer came and went on Friday, increasing the tension in the fast-paced bidding war with Johnson & Johnson for the medical device maker.
Guidant had until 4 p.m. ET to respond to an offer Boston Scientific made Thursday night that boosted its bid by about $330 million, to $24.98 billion. That compares to J&J’s offer of $23.2 billion in a deal that has already cleared an antitrust review and could be concluded more quickly.
A spokesman for J&J declined to comment after the deadline passed. Calls to Guidant and Boston Scientific were not returned.
Earlier, Boston Scientific had given Guidant two extra hours to consider its offer, then quickly retracted the extension.
The reversal came after Boston Scientific learned Guidant was using the extra time to negotiate further with J&J about a possible counteroffer, an adviser familiar with the situation said.
The adviser, who asked not to be identified because of the negotiations’ sensitivity, said Boston Scientific granted the extension after being told that Guidant’s board was having logistical troubles arranging a meeting to comply with the deadline.
Guidant’s board of directors already has recommended shareholders vote in favor of J&J’s offer in a Jan. 31 meeting.
The absence of an announcement from Guidant immediately after the deadline left Boston Scientific facing the prospect of perhaps increasing its offer yet again — possibly to a level that would leave it with an uncomfortable amount of debt. The offer has already drawn the interest of debt rating agencies. Moody’s Investors Service and Standard & Poor’s are reviewing the company for a possible downgrade, and Fitch Ratings placed Boston Scientific on a ratings watch.
Boston Scientific also could press its case directly to Guidant’s shareholders in hopes of reshaping the company’s board to bring in members who embrace its bid, or walk away.
“It’s the old game of chicken, and it comes down to who blinks first,” said Anthony Sabino, a mergers and acquisitions attorney and a professor at St. John’s University in New York. “This is an all-bets-off scenario.”
Boston Scientific values Guidant at $73 per share and proposes to pay Guidant shareholders half in cash and half with its own shares.
J&J’s offer would pay $37.25 in cash — 75 cents per share more than Boston Scientific — and 0.493 shares of Johnson & Johnson stock for each outstanding Guidant share. J&J’s offer is worth about $68 per share.
Boston Scientific shares rose 15 cents to close at $25.20 on the New York Stock Exchange Friday as shares of Guidant rose 44 cents to $70.84. J&J shares fell 39 cents to close at $61.82.
J&J and Boston Scientific, rivals in the market for drug-coated heart stents, are dueling for Guidant’s business in implantable defibrillators and pacemakers, a fast-growing $10 billion business in which neither suitor is a player.
The bidding stakes are higher for Boston Scientific, which needs new products to spur growth because its drug-coated heart stents aren’t as lucrative as they once were. J&J also hopes to diversify in response to rivals’ entry into the stent market. But it’s far larger than Boston Scientific, with a much broader range of products and greater financial resources to increase its bid, depending on how badly it wants Guidant.
Many observers say Guidant’s board could face resistance from shareholders attracted to Boston Scientific’s larger offering price. However, Guidant would have to pay a $675 million break-up fee to J&J if it walks away from their deal.
If Guidant’s board backs Boston Scientific’s offer, J&J would have five business days to counter it, according to its agreement with Guidant.
The latest proposal from Natick, Mass.-based Boston Scientific also adds other enticements it says address concerns Guidant’s board had raised, including the possibility that a regulatory review could delay the deal’s closing.
Boston Scientific took the unusual step of offering to make interest payments to Guidant shareholders if the transaction doesn’t close by March 31. The offer’s price would rise each day thereafter at a daily rate amounting to an annual interest rate of 6 percent.
“They have really alleviated the issues about an antitrust review,” Jefferies & Co. analyst Ryan Rauch said.
J&J offered $25.4 billion for Guidant in December 2004, but later reduced the offer to $21.5 billion because of recalls and regulatory investigations involving Guidant products. The New Brunswick, N.J.-based company argues its proposal offers Guidant shareholders greater certainty and a quicker deal.
Some shareholders are siding with Boston Scientific.
A letter that Deephaven Capital Management, one of Guidant’s 10 biggest shareholders, wrote to Guidant’s board Friday says the firm believes Boston Scientific’s offer “holds better value, ensures certainty of closing, and compensates Guidant’s shareholders for any unforeseen delays.”
Boston Scientific’s revised offer pledges the company will “divest all overlapping assets” if required. Boston Scientific on Sunday announced a separate deal to sell Guidant’s vascular business for about $4 billion to Abbott Laboratories Inc., if Boston Scientific’s Guidant bid succeeds.
J&J’s deal does not propose to sell that piece of Guidant’s business.