Guidant drama revives St. Jude takeover talk
Tuesday January 17, 4:33 pm ET
By Susan Kelly
CHICAGO (Reuters) - The bidding war for heart device maker Guidant Corp. (NYSE:GDT - News) has revived speculation that St. Jude Medical Inc. (NYSE:STJ - News) will be the next takeover target in the medical technology sector, analysts said Tuesday.
Shares of St. Jude have climbed more than 11 percent since Boston Scientific launched its first offer for Guidant on December 5, suggesting that the oft-rumored acquisition of St. Jude by a rival is again on investors' minds, analysts said.
"That's telling," said John Chen, merger and arbitrage analyst with independent research firm Cathay Financial. "Certainly the market is anticipating that whoever doesn't get Guidant is likely to turn its sights on St. Jude," he said.
Boston Scientific, a top maker of drug-coated stents to treat clogged arteries of the heart, on Tuesday raised its offer to $80 a share for Guidant, which makes implantable cardioverter defibrillators, or ICDs, and pacemakers to manage errant heart rhythms.
Guidant said it was evaluating the offer. Boston Scientific said the offer would expire at 5 p.m. ET on Tuesday unless Guidant declared Boston Scientific's proposal superior to a raised bid from Johnson & Johnson (NYSE:JNJ - News) of $71 a share. Guidant had accepted the Johnson & Johnson bid, which was raised from $68, on Friday.
Analysts said the willingness of both J&J and Boston Scientific to pay up for Guidant suggests either might be willing to pay a premium for St. Jude, which competes with Guidant in the ICD market. But how much of a premium is anyone's guess.
"As the offer size for Guidant increases and the relative value of its ICD business increases, we can't ignore the fact that at some point it might make sense for one of the two contenders to take a serious look at St. Jude Medical," Deutsche Bank analyst Tao Levy said in a note to clients.
Piper Jaffray analyst Thomas Gunderson said shareholders of St. Jude probably would settle for no less than $65 to $75 a share for the company.
"St. Jude is not for sale, but at what price would it be?" he asked.
St. Jude, at its current price of just over $53 a share, is trading at a multiple of 25 times projected 2007 earnings, Gunderson said. Guidant, meanwhile, at $80 a share, would be valued at 29 times Gunderson's 2007 earnings estimate for the company.
"The price that I think you'd have to pay for St. Jude would be even more expensive than what Guidant is being bid for today," Gunderson said.
Susquehanna Financial Group analyst Mark Landy said any St. Jude suitor would likely look for a pullback in the stock before stepping in with a bid.
"We are now approaching a value for Guidant that could easily put St. Jude in play. But companies don't have to buy at the top," he said. Guidant is the more attractive property of the two, he noted, because of its vascular business and intellectual-property portfolio.
St. Jude options were trading at about double their average daily volume late on Tuesday.
"While the bidding war escalates for Guidant, both St. Jude and Medtronic's (NYSE:MDT - News) stocks have moved up to yearly highs. The stocks have moved so much it might be hard for JNJ or BSX to offer a substantial premium," said William Lefkowitz, options strategist at vFinance Investments Inc., a brokerage firm based on Florida.
Shares of St. Jude closed up 30 cents at $53.83 Tuesday on the New York Stock Exchange.
(Additional reporting by Julie Steenhuysen and Doris Frankel in Chicago)
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