NEW YORK (CNNMoney.com) -
Boston Scientific made a $25 billion bid Monday for rival medical device maker Guidant, offering 14 percent more than the previously agreed-upon price from Johnson & Johnson.
Boston Scientific said it is offering $36 in cash and a fixed number of shares also having a value of $36 a share at the time an merger agreement is reached.
Johnson & Johnson agreed to pay $63.08 a share in cash and stock for Guidant last month, after regulatory investigations caused J&J to back away from its earlier agreement to buy the company for $76. That offer is now worth $63.43 a share for Guidant, based on the closing value of Johnson & Johnson stock Friday.
Shares of Guidant (up $5.91 to $67.73, Research) gained nearly 9 percent in late-morning trading Monday following the offer, while shares of Johnson & Johnson (up $0.36 to $61.57, Research) was narrowly higher. Boston Scientific (down $0.46 to $26.87, Research) lost about 5 percent in early trading, but then rebounded to be down about 1 percent in late-morning trading.
Guidant issued as statement saying its board will consider the proposal submitted by Boston Scientific, and saying it would have no further comment on the offer. Spokesmen for Johnson & Johnson were not immediately available for comment Monday on the surprise bid from Boston Scientific.
Boston Scientific's statement said the $25 value of the deal is $3 billion more than the current value of the J&J offer. It also represents a premium of about 16.5 percent over the closing price of Guidant's shares Friday.
"The combination of Guidant and Boston Scientific will create the world's leading cardiovascular device company accelerating diversification and growth," said a statement from Boston Scientific Chairman Pete Nicholas. "Moreover, the financial benefits of this proposal are compelling for Guidant shareholders, as our proposal provides superior value over that provided by the transaction between Guidant and Johnson & Johnson."
Executives with Boston Scientific insisted they could move fast on the deal, a concern to shareholders who know that Johnson & Johnson has already won just about all the regulatory approvals needed to close its purchase of Guidant.
To speed along approval and to raise cash, Boston Scientific executives told analysts they are prepared to sell Guidant's stent business, although it wanted to retain some shared rights in some of Guidant's new products in that area. A stent is a mesh device used to open a blocked or clogged artery to allow blood to flow, and Boston Scientific is a leader in that area.
$3 billion for stents
While Boston Scientific executives wouldn't estimate what all the asset sales following the merger might bring, the stent business could bring $3 billion by itself, according to the conference call.
Boston Scientific executives said that besides the higher initial price, their offer has more upside than the Johnson & Johnson offer because they believe there is more upside for their stock if they are able to complete the deal. They said that diversified medical device makers generally have a stock price which reflects a higher multiple of both current and future earnings.
"This transaction is driven by diversification," said Paul LaViolette, chief operating officer of Guidant, on the call with investors.
The lowering of the price for Guidant by J&J earlier this fall opened the door for Boston Scientific's bid, said CEO Jim Tobin.
"The recent revised J&J offer gave us reason to take another look at Guidant," he told investors.
The company said it expects to save $200 million a year in cost cuts from the deal, but it did not detail any staff cuts that would be involved. It also said it should be able to add to Boston Scientific's earnings per share by 2008.
Boston Scientific's letter to Guidant said it has received commitment letters from Bank of America and Merrill Lynch for all the financing it needs to complete the proposed deal.
Guidant is a leading maker of pacemakers and implanted defibrillators, as well as devices to open clogged arteries such as stents. But there have been recalls of its implantable heart defibrillator, and New York State Attorney General Eliot Spitzer last month accused the company in a lawsuit of hiding information about a defect in the device.
Boston Scientific specializes in devices used in minimally invasive surgical procedures. It recalled 99,200 of its Taxus stents in 2004 and a report last month that the FDA was still looking at problems with patients who may have suffered artery damage during installation of the stents.
For a look at the revised deal between J&J and Guidant agreed to in November, click here.