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Boston Scientific Places Big Bet

Posted on: Wednesday, 7 December 2005, 00:00 CST

By Christopher Rowland, The Boston Globe

Dec. 7--Johnson & Johnson yesterday declined to start a bidding war with Boston Scientific Corp. over Guidant Corp., increasing the chances that Boston Scientific's $25 billion bid will win.

Johnson & Johnson has more time to increase its offer from $21.5 billion, however, so Boston Scientific can't pop the corks yet on the potential megamerger that would make the Natick company a colossus in the field of cardiovascular medical devices, analysts said.

The sign that Johnson & Johnson is standing pat -- at least for now -- came in a statement yesterday from William C. Weldon, the company's chairman and chief executive. He said the company's current offer "represents full and fair value." He expressed an ongoing commitment to its proposed deal.

Analyst Jan Wald of A.G. Edwards said it is unlikely that Johnson & Johnson, a Guidant suitor for a year, would increase its offer now. Last summer, Johnson & Johnson seized on Guidant's recall of 88,000 implantable cardiac defibrillators to reduce its bid by around $4 billion to the current $21.5 billion.

"After all the noise they made, there would certainly be a lot of questions asked," said Wald. He rated the chances of a Johnson & Johnson-Guidant deal materializing at "almost zero."

Guidant investors, Wald added, appear enthusiastic about the Boston Scientific deal. "From what I've heard, the investors are telling them to get it done quickly," he said.

Stocks of all three companies stabilized yesterday. Boston Scientific slipped 1 cent to $26.34 on the New York Stock Exchange. Guidant's shares fell $1.10, or 1.62 percent, to $66.88. Johnson & Johnson's shares fell 58 cents, or nearly 1 percent, to $60.47.

Boston Scientific has said it would like to close the deal during the first quarter of 2006. It will have to win approval from the Federal Trade Commission, which analyzes mergers to ensure they do not violate federal antitrust laws. Boston Scientific said it would commit to selling Guidant's vascular intervention and endovascular business to avoid a market consolidation in those product lines that would invite antitrust scrutiny.

The merged company would have a huge market in devices related to cardiac care. A combined Boston Scientific and Guidant would market Boston Scientific's drug-eluting Taxus stents, which are used to prop open clogged arteries, and Guidant's defibrillators, which deliver a shock to maintain a steady heartbeat in a patient suffering a heart attack.

If Guidant chooses to accept Boston Scientific's offer, Guidant's agreement with Johnson & Johnson obligates it to pay a $625 million breakup penalty to Johnson & Johnson.

In addition, any company that buys Guidant would have to manage the regulatory and legal fallout from last summer's defibrillator recall.

Boston Scientific reiterated its enthusiasm for the deal yesterday.

"We have brought a lot of companies into the Boston Scientific family, and we have never been more confident or enthusiastic about the prospects for a merger," said Boston Scientific spokesman Paul Donovan. "We are offering significantly more value, and there is strong upside potential over time."

On a per-share basis, Boston Scientific is offering $72, compared to Johnson & Johnson's $63. Before the summer's defibrillator recalls, Johnson & Johnson had offered $76 per share.

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JNJ, BSX, GDT, AGE,

Source: The Boston Globe

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