Guidant goes with Boston Scientific
Medical device maker picks $27B deal after Johnson & Johnson passes up chance to raise offer.
NEW YORK (CNNMoney.com) - Guidant Corp. formally ended its merger agreement with Johnson & Johnson and entered into a $27 billion accord with Boston Scientific, the medical device maker announced early Wednesday.
J&J (Research) had until midnight ET Tuesday to raise its offer for Guidant (Research), which it had agreed to buy in December 2004. Boston Scientific was offering $27 billion for Guidant, in a cash and stock deal worth $80 a share.
The midnight deadline passed without any new bid from J&J, which had offered $24.2 billion for the company. Guidant said Wednesday it will pay a termination fee of $705 million to J&J.
Shares of Boston Scientific rose 70 cents, or almost 3 percent, to $24.70 in pre-market trading on Inet following the announcement, while shares of Guidant slipped 68 cents to $76.10 as the potential for another round of bidding ended. Shares of Dow component J&J were not trading on Inet, but were up slightly in Frankfurt trading.
J&J's original $23.9 billion deal for Guidant was initially derailed by product recalls from Guidant, which caused the suitor to lower its bid to $21.5 billion, then by Boston Scientific (Research) starting a bidding war for Guidant in early December.
J&J issued a statement early Wednesday saying simply that increasing its latest offer "would not have been in the best interest of its shareholders."
The Boston Scientific-Guidant deal still needs the approval of antitrust regulators in the United States and Europe, who had already cleared the potential deal between J&J and Guidant.
J&J claimed advantage
The quicker potential closing of a deal with J&J, and the fact that the Dow component would need less dilution of shares outstanding to close the deal, led J&J to argue that its $71-a-share offer for Guidant was superior to Boston Scientific's bid, which includes $42 in cash and stock worth $38 a share.
But a week ago the Guidant board declared the Boston Scientific offer to be superior and gave J&J the deadline to improve its bid further.
Guidant is a leading maker of pacemakers and heart defibrillators. With the deal for Guidant, Boston Scientific is poised to become the No. 2 provider of the devices, according to Keay Nakae, analyst for C.E. Unterberg, Towbin.
"The cardiac rhythm management business is large -- $10 billion, highly profitable, and it's an oligopoly," said Nakae, in a Jan. 13 interview.
But Guidant has had problems during the last year. In July, Guidant recalled tens of thousands of pacemakers because of faulty sealants that allowed moisture to damage the devices' electronic circuitry.
Then in December the FDA sent Guidant a warning letter stemming from its inspection of a pacemaker factory in St. Paul, Minn., three months earlier. The company replied that it had already addressed 90 percent of the problems cited in the letter.
The failure of its deal for Guidant could lead J&J to look for other acquisition targets, according to analysts.
For a look at why Guidant was considered valuable to both Boston Scientific and Johnson and Johnson, click here.
For a look at whether both bids for Guidant were too high, click here.