Boston Scientific makes formal bid for Guidant
Sunday January 8, 6:26 pm ET
By Debra Sherman and Jessica Hall
CHICAGO/PHILADELPHIA (Reuters) - Boston Scientific Corp. on Sunday formalized its $25 billion cash and stock offer to acquire Guidant Corp. (NYSE:GDT - News) in a move to woo the medical-device maker away from its existing merger partner, Johnson & Johnson (NYSE:JNJ - News).
The purchase of Guidant would give Boston Scientific (NYSE:BSX - News) access to the $10 billion market for pacemakers and defibrillators, devices that help regulate heart beats and the main drivers in J&J's bid for Guidant.
Boston Scientific said its definitive offer has the same price tag as a preliminary proposal it made last month. The new proposal, however, includes a protection against a fluctuation in Boston Scientific's stock price.
"Guidant's board will probably take it's sweet time with the offer and if the board endorses it, it'll be the death knell for J&J's offer," said WBB Securities analyst Steve Brozak.
Boston Scientific also forged a side deal to sell two Guidant units to Abbott Laboratories Inc. (NYSE:ABT - News) for $4.3 billion to help ease regulatory review of the deal.
The sale of those units is conditional on Boston Scientific completing the purchase of Guidant. Under the agreement, Abbott would pay $3.8 billion upfront, plus two installments of $250 million each upon regulatory approval of certain products.
Boston Scientific, based on Natick, Massachusetts, said its bid represents a 12 percent premium over the value of J&J's $22.3 billion agreement to buy Guidant. In November, J&J cut the value of its takeover offer following safety concerns and litigation over Guidant's heart products.
Brozak said he expects Boston Scientific's bid to win.
"I don't see how it's practical for J&J to come back now and raise their offer because they've said repeatedly that their last (reduced) offer represents full value. If they paid more and something went wrong, how would (J&J's) management rationalize that?" Brozak said.
Boston Scientific, which makes cardiovascular devices and products used in oncology and urology, set a January 19 deadline for Guidant to respond to the definitive offer.
Guidant, based in Indianapolis, and health-care conglomerate J&J, based in New Brunswick, New Jersey, could not be immediately reached for comment. Guidant's shareholders are currently scheduled to vote on the J&J offer on January 31.
'WE CAN MANAGE IT'
Boston Scientific said it sees Guidant's product and legal problems as manageable.
"The foremost thing here is that the long-term value of Guidant's business is very much in tact. We have a realistic view of them and these sorts of problems are not uncommon in this field," Boston Scientific's chief operating officer, Paul LaViolette, said in a telephone interview.
"We've looked at the litigation very carefully. It's safe to say we can manage it," LaViolette said.
When Boston Scientific made its unsolicited offer for Guidant, it said it expected the deal to benefit its cash earnings in 2008. However, after reviewing Guidant's business more closely, Boston Scientific's Chief Financial Officer Larry Best said in a telephone interview that it could take an additional 12 to 18 months for the deal to boost earnings.
Boston Scientific said it expects adjusted earnings to be in the range of $1.50 a share to $1.66 a share in 2007, and in the range of $1.98 a share to $2.18 a share in 2008. In 2007, the first full year of the combined operations, Boston Scientific expects $10 billion in pro forma sales, ramping up to $16 billion in sales in 2011.
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