Guidant accepts new J&J offer
Friday January 13, 11:23 pm ET
By Jessica Hall and Debra Sherman
PHILADELPHIA/CHICAGO (Reuters) - Medical-device maker Guidant Corp. said on Friday it accepted a higher takeover offer from Johnson & Johnson of $24.2 billion, ignoring a $24.8 billion offer from rival bidder Boston Scientific Corp.
It marks the third time J&J had revamped its offer for Guidant, which has suffered from product recalls and litigation over the safety of its heart devices.
J&J's new offer is valued at $71 per share, up from its earlier bid of $23 billion, or $68 per share. It sweetened the bid by increasing the cash component to $40.52.
"This agreement with Johnson & Johnson provides significant financial value and certainty for shareholders," said Guidant Chairman and Chief Executive James Cornelius.
At least one major shareholder balked at the latest deal with J&J, however.
Just two months ago, J&J had said Guidant's product woes had materially damaged the value of the company. Yet, J&J was sucked into a bidding war after Boston Scientific lobbed higher and higher bids.
Both companies were vying for Guidant's share of the $10 billion market for devices that help regulate heart beats.
"Guidant should be very appreciative of the fact that Boston Scientific has help raise shareholder value (for them)," said Steve Brozak, an WBB Securities.
Brozak said he expects Boston Scientific to take some time while it evaluates its next move, which could include bypassing Guidant's management and taking its bid directly to investors.
Boston Scientific, which makes cardiovascular devices and products used in oncology and urology, could not be immediately reached for comment.
PUSHING THE OFFER HIGHER
Boston Scientific had hiked its bid on Thursday to $73 per share, up from $72 a share, and made other concessions to try to address Guidant's concerns about antitrust scrutiny and the timing of the deal's completion.
It had set a deadline of 4 p.m. EDT (2100 GMT) on Friday for Guidant to respond.
In an odd twist, Boston Scientific issued a news release saying it would extend by two hours the expiration of its offer. About 20 minutes later, the company withdrew the statement without an explanation.
Sources familiar with the situation said Boston Scientific yanked the deadline-extension when it realized Guidant was planning to use that time to negotiate a new deal with J&J.
In the end, Guidant stayed with its original partner rather than taking the risk that the higher bid from Boston Scientific may take longer to close and run into problems with antitrust regulators.
"Guidant has proven to be conservative throughout this whole process. Conservative to the point that they don't want to make any mistakes," Brozak said. "They've been consistent in letting J&J run the scenario."
Since Guidant and J&J had invested 13 months into planning their integration, walking away may have seemed unacceptable, analysts said. J&J had original agreed to buy Guidant in December 2004, for $25.4 billion.
John Chen, a merger and arbitrage analyst with Cathay Financial, said he thought the new $71-per-share offer from J&J seemed low strictly from a financial sense. Guidant must have viewed J&J as a better partner in the long term, Chen said.
"At the same time, you're taking a discount in order to achieve that," Chen said. "They'll have to convince the shareholders to vote in favor of it."
Hedge fund Elliott Associates LP, which owns about 3 million Guidant shares, said it still preferred the Boston Scientific offer.
"We view Boston Scientific's $73-per-share offer as superior to J&J's $71 offer," said Ivan Krsticevic, a senior portfolio manager with Elliott Associates. "As long as Boston Scientific's offer remains available to Guidant or its shareholders we will not support the J&J transaction."
Earlier on Friday, Deephaven Capital Management, one of Guidant's 10 largest shareholders, said it had no intention of voting its shares in favor of J&J's previous offer. The firm could not be immediately reached to comment on the new bid.
Guidant shareholders will vote on the J&J proposal on January 31.
Shares of Guidant traded as high as $71 on Friday on the New York Stock Exchange, the highest level in three months. Guidant's stock closed at $70.84, up 44 cents or 0.63 percent.
J&J's stock shed 39 cents or 0.63 percent to close at $61.82, while Boston Scientific gained 15 cents or 0.6 percent to close at $25.20, also on the NYSE.
(Additional reporting by Julie Steenhuysen in Chicago and Lewis Krauskopf in New York)
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