Medical Device Daily Associate

Boston Scientific (Natick, Massachusetts) early yesterday reported receiving antitrust approval from the U.S. Federal Trade Commission for its proposed $27.2 billion combination with Guidant (Indianapolis), thus clearing the final hurdle to completion of the mammoth merger. It is slated to be finalized today.

The deal received European clearance earlier in the month (Medical Device Daily, April 12, 2006).

Reaching the marital alter, the two companies – already major players in the cardiovascular sector – create a veritable titan in this arena. But though a “Goliath,“ the larger company faces a variety of “Davids“: Boston Scientific needing to settle a variety of concerns by the FDA, issued in a heavy-handed warning letter in January (Medical Device Daily, Jan. 30, 2006); a period of integration that will take up to six months and possibly longer; and an avalanche of lawsuits resulting from disclosures concerning problems with Guidant's implantable defibrillator products.

Completion of the deal closes a lengthy chapter begun nearly 16 months ago when Johnson & Johnson (J&J; New Brunswick, New Jersey) became the initial suitor for Guidant, but was then elbowed aside by a higher bid from Boston Scientific – an event J&J probably was not too unhappy to see, given Guidant's many troubles serving as a magnet for bad publicity and the onslaught of litigation.

The FTC yesterday also cleared the proposed $6.4 billion acquisition of Guidant's vascular intervention and endovascular businesses by Abbott Laboratories (Abbott Park, Illinois). The deal with Abbott, which is also expected to close today, was made to satisfy concerns that the combined company could command too great a share of the market for heart stents.

Abbotthas agreed to pay $4.1 billion in cash, and provide a $900 million loan to Boston Scientific and acquire $1.4 billion in Boston Scientific stock.

The FTC also required Boston Scientific to reform “certain contractual rights“ between it and Cameron Health (San Clemente, California), a developer of a new ICD product that Boston Sci had made a substantial investment in and has acquired the rights to buy at a future date.

As part of the FTC accord, Boston Scientific has agreed to divest its equity investment in Cameron within 18 months if it does acquire the company prior to the expiration of its option to do so. It will also notify the FTC prior to any attempt to exercise its option to acquire Cameron.

Based on a formula, Guidant shareholders will receive $78.88 per share, which values the deal at roughly $500,000 less than reported in the merger agreement due to a decline in the value of Guidant's shares. The price was based on $42 in cash, 1.6799 Boston Scientific shares for each Guidant share valued at $36.60, and interest of 28 cents because of the transaction's delay since April 1.

At the end of March, both companies' respective shareholders voted “overwhelmingly“ to approve the combination of the companies at separate special meetings (MDD, April 3, 2006), this despite all the recent problems Guidant has had with its cardiac rhythm management products over the past year and Boston Scientific's company-wide warning letter issued by the FDA in January.

More than 96% of the shares represented at the meeting and more than 73% of the outstanding shares of Boston Scientific were voted in favor of the transaction at the Boston Scientific shareholders meeting. More than 98% of the shares represented at the meeting and more than 66% of the outstanding shares of Guidant were voted in favor of the transaction at the Guidant shareholders meeting.

Boston Scientific on Jan. 25 won a nearly two-month bidding war with J&J to buy Guidant and its business in the fast-growing market for implantable defibrillators (MDD, Jan. 26, 2006). The company has projected about one-quarter of its sales will come from Guidant's pacemakers and defibrillators.

J&J, which had first disclosed plans to acquire Guidant back in January 2004 for $76 a share, had by November of 2005 dickered the price down to $63 a share due to what it said were concerns about legal and regulatory problems within Guidant's Cardiac Rhythm Management (CRM) business.

Because the price was so low, Boston Scientific saw an opportunity to steal the company from its competitor and give itself an instant presence in the CRM market.

Ultimately, Guidant proved to be the winner with a final agreement that saw its shares going for nearly $79 apiece, with Boston Scientific also picking up the $705 million break up fee required to end the merger agreement with J&J.

Guidant shareholders also benefited from a delay in the closing of the merger which was supposed to be completed by March 31.

As per the merger agreement, Guidant shareholders received an additional $0.0132 in cash per share for each day beginning on April 1 through the closing date of the merger – translating to roughly $4.5 million a day, or about $90 million based on 20 days since the expected closing.