Guidant bidding war not over yet
BOSTON — Medical device maker Guidant Corp. abandoned its support for a $24.2 billion acquisition bid from Johnson & Johnson in favor of Tuesday’s far richer $27.2 billion offer from Boston Scientific Corp.
The shift came after Guidant’s board had twice rejected higher offers from Boston Scientific in favor of J&J proposals that Guidant had said offered a speedier route to completion after more than 13 months of contentious dealmaking.
But Boston Scientific on Tuesday morning increased the stakes again by offering a price more than $2 billion richer than its previous bid last Thursday — a far higher increase than it had made in previous rounds. Boston Scientific added other enticements as well, and sought to sway Guidant’s board in its favor by negotiating new terms in a third-party deal that will raise more cash for Boston Scientific to complete a Guidant acquisition.
Guidant said in a brief statement that its board determined that Boston Scientific’s revised offer “is superior to the terms of the company’s current merger agreement with Johnson & Johnson.” The statement did not elaborate.
In a short statement, Johnson & Johnson said it believed Boston Scientific’s proposal would hurt the earnings potential of the combined company and leave it saddled with too much debt. J&J also said the proposal was based on “extremely aggressive business projections.”
“The company will consider its alternatives under the existing merger agreement with Guidant,” J&J said.
Natick, Mass.-based Boston Scientific said, “We look forward to working together to complete the transaction.”
Shareholders are to vote on J&J’s offer Jan. 31. But with Indianapolis-based Guidant declaring Boston Scientific’s bid superior, J&J now has five business days — until the end of business Jan. 24 — to counter it under the terms of its agreement with Guidant. Boston Scientific’s offer will remain open for formal acceptance by Guidant until Jan. 25.
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.
Tuesday’s big price increase from Boston Scientific led analysts to speculate the bid was a last-ditch attempt to trump J&J, which is based in New Brunswick, N.J.
With its latest $80-per-share offer, Boston Scientific “is clearly playing to win,” said analyst Dhulsini De Zoysa of SG Cowen & Co.
She said J&J — a far larger company than Boston Scientific — has the financial capacity to increase its offer from its current $71 a share. But she said J&J is unlikely to go above the $76-per-share proposal it initially presented in December 2004, before product recalls and safety warnings at Guidant led J&J to reduce its offer.
“I think it would be very difficult for J&J to defend an offer above its original $76-a-share bid,” De Zoysa said. “A solution that might satisfy the Guidant board as well as shareholders is to offer $76 a share with a higher cash component, or offer to pay all in cash.”
“By restructuring the terms, they could make a final offer that is attractive in that it offers the certainty of cash.”