Boston Scientific Wins Over Guidant

By Edward Iwata

In the two-month bidding war for heart-device maker Guidant, Boston Scientific on Tuesday trumped rival Johnson & Johnson — at least for now.

After favoring J&J’s earlier offers, Guidant’s board reversed course and said a revised $27.2 billion bid by Boston Scientific Tuesday is superior to J&J’s latest $24.2 billion offer.

Guidant has until Jan. 25 to formally accept Boston Scientific’s amended offer and kill its current deal with J&J. Guidant shareholders will vote on either merger on Jan. 31.

“By any objective measure, our offer is clearly superior to Johnson & Johnson’s,” Boston Scientific CEO Peter Nicholas said in a statement.

In a letter Tuesday to Guidant’s board, Nicholas added: “Through our combination, we will establish the company as the second-largest ‘pure-play’ medical device company in the world” with $9 billion in revenue in 2006.

Securities analysts and investment managers praised the change of heart by Guidant directors. Some said the Guidant board would hurt shareholders and shirk its “fiduciary duties” if it recommended J&J’s lower bid.

Ivan Krsticevic, senior portfolio manager at hedge fund Elliott Associates, said in a statement: “There should be no debate which offer is superior.” He said that Boston Scientific’s higher offer and J&J’s lower $71-a-share deal aren’t “even in the same ZIP code.” Elliott Associates owns 3 million Guidant shares.

Under the new offer, Boston Scientific will buy all Guidant shares for $80 each — $42 in cash and $38 in Boston Scientific common stock.

To address antitrust issues, Guidant still would sell part of its business to Abbott. Also in the new offer, Abbott would raise its purchase price to $4.1 billion from $3.8 billion and a loan to Boston Scientific to $900 million from $700 million. Abbott would buy 4% of the new company.

James Melican, president of Proxy Governance, a proxy research firm, said Guidant’s board must weigh whether “its shareholders are likely to be better off in the long run” with Boston Scientific or J&J. Part-cash, part-stock deals make that task even tougher.

Boston Scientific and J&J are wrestling for position in the growing, multibillion-dollar market for heart devices. Whoever buys Guidant would become the world’s No. 2 maker of implantable pacemakers and defibrillators.

In trading Tuesday, Guidant’s stock price rose 8% to $76.22, while Boston Scientific shares fell 5% to $23.90, and J&J shares dipped 1% to $61.28.

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