Boston Scientific wins Guidant duel

INDIANAPOLIS — Boston Scientific got what it wanted out of its bidding war with Johnson & Johnson for medical device maker Guidant Corp. — a chance at a key foothold in the lucrative cardiac device market.

But the deal comes with a price that goes beyond its $27.2 billion offer, which Guidant announced it had accepted Wednesday: liability from product recalls that could reach $2 billion, an increased debt load that could delay earnings gains and a $705 million breakup fee to the jilted J&J.

Assuming Boston Scientific overcomes these hurdles, the chance to become a formidable contender in the $10.3 billion heart device market is worth the pain, company officials and many observers say.

“We expect the company to be a cardiovascular powerhouse, worth more together than on a stand-alone basis,” Dhulsini de Zoysa, an analyst at SG Cowen & Co., told investors in a research note.

Besting longtime suitor Johnson & Johnson and its $71-per-share offer wasn’t easy. Over the course of 13 months, seven bids were submitted for Guidant — five of them since December. Boston Scientific’s $80-per-share bid won out when J&J let a midnight deadline to respond expire.

New Brunswick, N.J.-based J&J initially offered $25.4 billion for Guidant in December 2004 but wavered after the recalls began. Guidant sued to close the deal, and the companies agreed to a revised J&J offer of $21.5 billion in November.

In December, Boston Scientific presented an unsolicited, $25 billion bid for Guidant, triggering the bidding war.

Randy Katz, a mergers and acquisitions lawyer in Irvine, Calif., said the bidding war was unusual because its roots lie in the recalls that prompted J&J to lower its offer.

“This is probably a first,” Katz said.

Since June, Guidant has recalled or issued safety advisories for about 88,000 defibrillators and more than 200,000 pacemakers. At least seven deaths have been linked to the faulty devices.

Anthony Sabino, a mergers and acquisitions professor at St. John’s University business school, likened the back-and-forth between the three companies to a “poorly written movie.”

“You have a lot of action, good guys and bad guys, heroes and villains. You build up to this climax and then there’s this long anticlimactic ending and the credits roll,” Sabino said.

The deal, which still needs approval from shareholders and regulators in the U.S. and Europe, could close late this quarter. The two companies expect combined 2006 revenue of $9 billion.