Medical Device Daily Associate

Johnson & Johnson's (J&J; New Brunswick, New Jersey) already tenuous bid to acquire Guidant (Indianapolis) appeared to take on house-of-cards solidity in the wake of Boston Scientific's (Natick, Massachusetts) definitive offer to acquire Guidant for $25 billion.

Following its completion of due diligence, Boston Sci on Sunday made a formal offer, standing by the original proposal it made last month and trumping by roughly $3 billion J&J's revamped offer (Medical Device Daily, Dec. 6, 2005).

While Boston Sci's offer is largely in line with its initial proposal, the formal bid includes a new and related $4.3 billion deal — assuming its offer is accepted by Guidant — to spin off Guidant's vascular intervention and endovascular businesses to Abbott Laboratories (Abbott Park, Illinois), thus allaying regulatory concerns.

Boston Sci said it will share rights to Guidant's stent development program with Abbott, which is pursuing its own effort to develop a drug-eluting stent (DES) device.

Boston Sci would receive $3.8 billion for Guidant's vascular business, plus an extra $500 million when U.S. and Japanese regulators approve the Guidant stent. Abbott also would give Boston Sci a $700 million loan, payable over five years.

Abbott would gain the right to complete Guidant's project to bring a DES technology to market, and then market and license the technology.

Guidant yesterday acknowledged receipt of the definitive offer from Boston Sci to acquire it for $72 per Guidant share, half in cash and half in stock. In a statement, it said its board will “evaluate all aspects of the offer from Boston Scientific.“

Boston Sci's updated offer also includes a protection to guard both companies' shareholders in case of wide fluctuations in Boston Sci's stock before any shareholder approval. If shares dip below an average $23.62 apiece in 20 trading days leading up to a vote, shareholders would receive a greater exchange rate (1.5241) than the current offer for swapping their Guidant shares. The rate would be reduced (1.2474) if Boston Sci's stock exceeds $28.86.

Boston Sci said during a Monday morning conference call to discuss its proposal that it feels confident that the additions to its merger offer makes its bid superior to that of J&J's.

“We are committed to this transaction because there is a compelling strategic and financial rationale for combining both Guidant and Boston Scientific,“ said Jim Tobin, president and CEO of Boston Sci.

Tobin stressed that the formalized offer comes “after the completion of a thorough due diligence process.“

He said that his company had great cooperation from Guidant in that process so it was able to cover a lot of ground in a relatively short amount of time. “Although Guidant does face some short-term challenges,“ Tobin noted, “the long-term potential is significant, and it is still intact.“

Paul LaViolette, Boston Sci's chief operating officer, elaborated further, acknowledging that Guidant's Cardiac Rhythm Management (CRM) business would hit a low point this year but then rebound to a level “consistent with market shares historically achieved and held by Guidant.“

Guidant's current merger proposal with J&J provides that each share of Guidant common stock would be exchanged for $33.25 in cash and .493 shares of J&J common stock. As of Jan. 6, the J&J proposal was valued at $64.11 per Guidant share.

While Guidant's board has yet to recommend for or against Boston Sci's initial offer, it has recommended shareholders vote for J&J's definitive proposal.

While Guidant acknowledged the Boston Sci proposal, J&J continued to make its case for its offer — reduced in November from $25 billion to $21.5 billion by J&J in reaction to legal and regulatory concerns associated with its CRM business and the implantable devices it makes.

In a press statement, J&J said it still expects to consummate the acquisition of Guidant immediately following a favorable shareholder vote by Guidant shareholders, set for Jan. 31.

“We continue to believe that the agreed-upon Johnson & Johnson deal represents a better offer for Guidant, its shareholders and its employees than the recently announced Boston Scientific proposal,“ said William Weldon, J&J chairman and CEO. He said that J&J “has the capacity to invest in Guidant's future. We intend to dedicate the resources necessary to enable Guidant to achieve a full and complete recovery in the cardiac rhythm management market, and to achieve and sustain leadership in interventional cardiology.“

“Guidant shareholders will find the certainty and imminence of our transaction compelling,“ Weldon added, noting that J&J has secured Federal Trade Commission, European Commission and other regulatory bodies' clearance of the acquisition and is satisfied that no other issues such as rights to intellectual property will impede the close of the merger.

While it is still possible for J&J to sweeten its offer for Guidant, it has issued public statements that it will not do so, saying that its offer “represents full and fair value.“ Additionally, J&J may be loathe to pony up more money because it pressed Guidant for a reduction in the price despite knowing that Boston Scientific had approached that company about a possible combination just two weeks prior to that deal being renegotiated (MDD, Nov. 16, 2005).

After taking a close look at Guidant's financial statements, Tobin said that the deal would start to add to Boston Sci's earnings in 2009, about a year beyond that previously anticipated.