Boston Scientific Ups Offer for Guidant

By MARK JEWELL

BOSTON – Boston Scientific Corp. signaled how urgently it wants to win a bidding war for medical device maker Guidant Corp. by boosting its offer to $27 billion on Tuesday and setting a deadline for a response by the end of the business day.

The more than $2 billion increase in Boston Scientific’s offer from last week and other new enticements put pressure on rival suitor Johnson & Johnson, which has a standing deal to buy Guidant at a price about $3 billion below Boston Scientific’s latest bid.

Boston Scientific’s move also could create a dilemma for Guidant’s board. Some industry analysts believe the board may face a shareholder revolt if it continues to argue that J&J’s smaller offer is preferable on account of its having been already cleared by antitrust regulators.

Indianapolis-based Guidant issued a brief response to Boston Scientific’s latest move, saying its board “will evaluate all aspects” of the offer, which expires at 5 p.m. EST Tuesday.

J&J spokesman Jeff Leebaw declined to comment.

The big increase by Natick, Mass.-based Boston Scientific led some observers to speculate the bid was a last-ditch attempt to trump J&J.

“In essence, by doing this, they’re trying to reduce the number of additional bidding rounds,” said merger expert Richard Langan of the law firm Nixon Peabody.

Time is running short for Boston Scientific, since Guidant shareholders are due to vote on J&J’s offer Jan. 31.

If Guidant declares Boston Scientific’s $27.2 billion bid superior, J&J would have five business days to counter it under the terms of its agreement with Guidant – potentially giving Boston Scientific just a handful of days before the shareholder vote to firm up any potential Guidant deal.

Jefferies & Co. analyst Ryan Rauch said if J&J doesn’t sweeten its latest bid and Guidant’s board continues backing 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.

The bidding war was sparked Dec. 5 when Boston Scientific sought to derail a year of contentious dealmaking between Guidant and J&J with an unsolicited offer of $24.6 billion. New Brunswick, N.J.-based J&J first bid for Guidant in December 2004, but recalls and regulatory investigations involving Guidant products led J&J to cut its original $25.4 billion offer to $21.5 billion.

Boston Scientific raised its bid to $25 billion last Thursday, prompting J&J to respond Friday with a $24.2 billion offer that Guidant’s board accepted, citing that deal’s greater certainty and its clearance of an antitrust review.

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.

Boston Scientific had previously offered an equal amount of cash and stock in its bid, but boosted the cash component Tuesday by offering $42 in cash and $38 in stock for each Guidant share.

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

It said the $80-per-share offer amounts to a premium of $9 per share, or a total $3.3 billion, over the latest $71-per-share offer from J&J. Its offer includes $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 had been set at $625 million, but has been increased twice in the most recent J&J offers.

However, one major Guidant shareholder 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, or about a 1 percent stake.

Boston Scientific’s latest bid amends a separate deal announced Jan. 8 to address antitrust issues and fears that a regulatory review could slow any deal. The 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 – deals that are contingent on Boston Scientific acquiring Guidant.

Boston Scientific said the revisions to the Abbott deal would give it an initial $6.4 billion from Abbott to help close any Guidant deal. Boston Scientific has said it would have to borrow about $9 billion to conclude a deal – an amount it says wouldn’t lead debt rating agencies to cut the company’s investment-grade rating. Nevertheless, ratings agencies are keeping a close watch.

Boston Scientific’s latest offer also includes a strengthened stock “collar” provision to protect the payout to Guidant shareholders in case of a wide swing in Boston Scientific’s stock before a shareholder vote. Boston Scientific also pledges to make interest payments to Guidant shareholders if the transaction doesn’t close by March 31.

Guidant shares rose $5.32, or 7.5 percent, to $76.16 in afternoon trading on the New York Stock Exchange, while shares of Boston Scientific fell $1.47, or 5.8 percent, to $23.73, and J&J shares declined 56 cents, or 0.9 percent, to $61.26.

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Associated Press Writer Carol Druga and AP Business Writers Wallace Witkowski and Linda Johnson contributed to this report.