Posted on January 26, 2006 | Business Standard
Boston Scientific wins Guidant
Company to buy cardiac device maker for $27 bn after rival Johnson & Johnson steps out.
Boston Scientific on Wednesday emerged victorious from a takeover battle for Guidant, a cardiac device maker, when the company's board accepted a $27 billion cash-and-stock offer and rival Johnson & Johnson decided not to counterbid.
J&J, which reported earnings on Tuesday, let a midnight deadline pass without increasing its latest $24.2 billion offer for Guidant. In a statement on Wednesday J&J said doing so “would not have been in the best interest of its shareholders”. Guidant will pay J&J a $705 million break-up fee by the end of play on Thursday.
Guidant's approval of the Boston bid and J&J's withdrawal marks the end of a heated takeover battle to secure a slice of the $10 billion per year market in implantable cardiac devices.
The move also leaves J&J facing concerns over its future growth prospects. On Tuesday J&J forecast earnings growth as low as 8 per cent in the current year, down from the 13 per cent it achieved in 2005.
Taking over Guidant would have consolidated J&J's position in medical devices, added a cardiac stent to its product portfolio and diversified its overall range of businesses to decrease reliance on pharmaceuticals.
To secure Guidant's approval, Boston entered a bid with a higher cash component and expanded protection for Guidant shareholders against a drop in its own share price.
In addition, Guidant recruited Abbott Laboratories to finance part of its offer with a loan and agreement for Abbott to buy a stake in the combined company alongside some parts of Guidant to ease anti-trust concerns.
Boston 's offer exposed the company to charges it was overpaying and deteriorating its financial position, but Boston said the improved terms were possible without worsening its balance sheet.
However, Boston shareholders' concern about dilution in their investment came through in a 2.8 per cent decline in Boston shares to $23.34 in pre-market trading. Guidant shares, meanwhile, eased 1.6 per cent to $75.55 and J&J ‘s rose 0.8 per cent to $59.81.
Guidant shareholders will receive $42 per share and $38 in stock. The winning offer was Boston Scientific's third since its initial counterbid of $25 billion, or $71 per share, launched in early January.
J&J exited the bidding war after it also raised its offer twice, to $68 and then $71 per share.
Boston Scientific, which is a tenth of J&J's size, entered the bidding for Guidant after J&J late last year negotiated a 17 per cent discount from its $25.4 billion initial bid for the company, launched more than a year ago.
Recalls of several types of Guidant's products over the summer caused J&J to invoke “material adverse changes” to the initial agreement and threaten to walk away from the contract, in turn triggering threats of a lawsuit from Guidant to force it to complete the transaction.
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