Boston Scientific Ups Guidant Bid to $27B
By MARK JEWELL
BOSTON – Boston Scientific Corp. increased its offer Tuesday for Guidant Corp. to about $27 billion from nearly $25 billion and set a deadline later in the day for a response, seeking to trump Johnson & Johnson in an increasingly pricey bidding war for the medical device maker.
The latest proposal from Boston Scientific expires at 5 p.m. EST Tuesday. The Massachusetts company hopes the increased price and other enticements will prompt Guidant’s board to abandon its support of J&J’s latest $24.2 billion bid, made Friday.
"By any objective measure, our offer is clearly superior to Johnson & Johnson’s," Boston Scientific chairman Pete Nicholas said in a statement.
Guidant issued a brief statement saying its board "will evaluate all aspects" of the latest offer with its advisers.
J&J spokesman Jeff Leebaw declined to comment on Tuesday morning.
J&J and Boston Scientific, rivals in the market for drug-coated heart stents, are dueling for Guidant’s business in implantable defibrillators and pacemakers, a fast-growing $10 billion business in which neither suitor is a player.
Even before Boston Scientific’s latest move, some analysts had suggested a revolt was possible by Guidant shareholders because Boston Scientific was offering a higher price than J&J, which countered that its deal offered greater certainty and a speedier route to closing.
Jefferies & Co. analyst Ryan Rauch said Tuesday if J&J doesn’t respond with another sweetened bid and Guidant’s board continues to back J&J’s proposal, "there would be a mutiny" from Guidant shareholders.
"There’s no way J&J’s bid now is superior," he said.
Rauch said it was likely J&J would increase its offer once again, but not to the $27.2 billion Boston Scientific is offering.
Boston Scientific sought to derail a year of dealmaking between Guidant and J&J by making an unsolicited bid on Dec. 5. If Guidant’s board declares Boston Scientific’s amended offer superior to J&J, it will remain open until Jan. 25. Any declaration that Boston Scientific’s offer is superior starts a clock of five business days for J&J to respond, according to its agreement with Guidant.
Boston Scientific had previously offered an equal amount of cash and stock in its offer, but boosted the cash component Tuesday, proposing to pay $42 in cash and $38 in stock for each share of Indianapolis-based Guidant.
It said the $80-per-share offer amounts to a premium of $9 per share, or a total of $3.3 billion, over the latest $71-per-share offer from J&J. The New Brunswick, N.J.-based company’s offer is made up of $40.52 in cash and 0.493 shares of stock.
While Boston Scientific’s offer is higher, Guidant would have to pay a $705 million break-up fee to J&J if it walks away from their current deal. The fee previously had been set at $625 million, but has been increased twice to the current $705 million in the most recent J&J offers, according to regulatory filings.
However, one major Guidant shareholder that has previously embraced Boston Scientific’s bids said Tuesday’s offer should leave "no debate."
"Boston Scientific’s $80 per share offer is not even in the same zip code as J&J’s $71 offer," said Ivan Krsticevic, a senior portfolio manager at Elliott Associates, which holds about 3 million Guidant shares.
In addition to increasing the offered price, Boston Scientific’s latest bid also amends a separate deal announced Jan. 8 to address antitrust issues and fears that a regulatory review could slow the closing of any deal.
Natick, Mass.-based Boston Scientific said its new proposal raises the price that Abbott Laboratories Inc. will pay for Guidant’s vascular business from $3.8 billion to $4.1 billion.
Abbott, based near Chicago, also will increase the amount it lends Boston Scientific to $900 million from $700 million, and Abbott will buy $1.4 billion worth of Boston Scientific’s stock. That would give Abbott about a 4 percent stake of the combined company if a Boston Scientific-Guidant deal succeeds. Boston Scientific’s agreements with Abbott are contingent on Boston Scientific concluding a Guidant deal.
Boston Scientific said the revisions to the Abbott deal would give it $6.4 billion in cash from Abbott around the time its proposed Guidant acquisition could close. Under its previous bids for Guidant, Boston Scientific has said it would have to borrow about $9 billion to conclude a deal – an amount the company has said wouldn’t lead debt rating agencies to cut the company’s investment-grade rating.
Nevertheless, Moody’s Investors Service and Standard & Poor’s are reviewing the company for a possible downgrade, and Fitch Ratings placed Boston Scientific on a ratings watch.
Boston Scientific’s latest offer also seeks to entice Guidant shareholders with new terms in a stock "collar" provision to protect the amount shareholders would receive in case of a wide swing in Boston Scientific’s stock before a shareholder vote.
Unlike Boston Scientific’s proposal, J&J’s offer has already cleared an antitrust review, which would speed the process toward closing a deal. Shareholders are due to vote on that proposal Jan. 31.
When it sweetened its offer last Thursday, Boston Scientific pledged to make interest payments to boost the price paid to Guidant shareholders if the transaction didn’t close by March 31.
The stakes are high for Boston Scientific because it needs a pipeline of new products to spur growth. Its drug-coated heart stents aren’t as lucrative as they once were amid new competition. J&J also hopes to diversify, but is far larger than Boston Scientific with a much broader range of products and greater financial capacity to endure a bidding war.
Guidant shares rose $5.47, or 7.7 percent, to $76.31 in midday trading on the New York Stock Exchange while shares of Boston Scientific fell $1.31, or 5.2 percent, to $23.89 and J&J shares fell 12 cents to $61.70.
—
Associated Press Writer Carol Druga and AP Business Writer Wallace Witkowski contributed to this report.