Guidant, on the rebound, at center of bidding war


The Guidant Corporation headquarters is shown in Indianapolis, Ind., on Thursday. Medical device maker Guidant Corp., which experts once thought could face long-term damage from a slew of regulatory and product safety problems, now finds itself at the center of a rare bidding war between two industry giants.

The Associated Press
Published: Friday, January 13, 2006 at 6:01 a.m.
Last Modified: Thursday, January 12, 2006 at 11:27 p.m.
Medical device maker Guidant Corp., which experts once thought could face long-term damage from a slew of regulatory and product safety problems, now finds itself at the center of a high-profile bidding war between two industry rivals.
Following Johnson & Johnson's sweetened $23.2 billion bid Wednesday, Guidant invited Boston Scientific Corp. "to continue a dialogue" about a possible counteroffer, an adviser in the talks said Thursday. The adviser asked not to be identified because of the negotiations' sensitivity.
Spokesmen for all three companies declined to comment Thursday.
On Jan. 31, Guidant shareholders will vote on Johnson & Johnson's new offer - $1.7 billion higher than its second offer in November but $2.2 billion less than its initial bid in December 2004.
Guidant's board of directors unanimously endorsed the newest deal, which calls for J&J to pay $37.25 in cash and 0.493 shares of its common stock for each outstanding Guidant share. Boston Scientific's unsolicited $25 billion cash-and-stock offer includes $36 in cash.
J&J's revised offer is the latest twist in the health products company's 13-month quest to acquire Guidant.
The deal nearly derailed last fall, when New Brunswick, N.J.-based J&J threatened to walk away because of Guidant's recall issues. Guidant sued to force J&J to complete the acquisition.
Since June, Guidant has recalled or issued warnings for about 88,000 heart defibrillators - including its top seller, the Contak Renewal 3 - and almost 200,000 pacemakers because of reported malfunctions. The company also faces about four dozen product liability class action lawsuits, 50 individual lawsuits, as many as a dozen securities fraud lawsuits and regulatory investigations.
But this week, Guidant raised its outlook for fourth-quarter earnings, saying Tuesday it expected to earn $828 million, up from an earlier projection of $790 million to $820 million.
The company's stock is also up nearly 25 percent from its 52-week low in November.
Anthony Sabino, a mergers and acquisitions attorney in New York, said Guidant's rebound shows how important its products - stents, defibrillators, pacemakers and other cardiac devices - are to its suitors.
"That's the most bizarre element, that they've come back," Sabino said of Guidant. "Nobody wants to buy anyone's headache."
Analysts predicted Thursday that the duel will continue.
"While a Ph.D. in game theory may help one's ability to accurately predict all the possible moves and countermoves here amongst the three firms involved, suffice it to say that this battle for (Guidant) appears far from over," UBS analyst Kenneth R. Weakley wrote in a research note.
J&J is a close No. 2 behind Boston Scientific in the market for drug-coated stents - metal-mesh devices that are coated with drugs to prevent scar tissue from creating new blockages after artery-clearing surgery.
With new entrants expected in that field, Boston Scientific and J&J both see Guidant's business as a crucial element in the expanding $10 billion market for pacemakers and implantable defibrillators.
Officials with Natick, Mass.-based Boston Scientific said in a statement Wednesday that they would "vigorously pursue" Guidant.
Sabino said he thinks the latest showdown could wind up in court as Boston Scientific tries to derail a shareholder vote on J&J's offer.
"Expect a full court press in the media to impress shareholders," he said. "Right now it's basically like an election."
But a protracted bidding war could backfire, said Allen Michel, a finance professor at Boston University's School of Management.
"Continued bidding could easily wind to what's known as a winner's curse, when the winner turns out to be the loser for paying too much," he said.
The new J&J offer also increases the breakup fee Guidant would pay from $625 million to $675 million, according to documents filed Thursday with the Securities and Exchange Commission.
Guidant shares fell 10 cents to $70.34 in afternoon trading on the New York Stock Exchange. Boston Scientific stock fell about 1.2 percent, or 31 cents, to $25.10, and J&J traded down 35 cents to $62.15.
--- AP Business Writers Mark Jewell in Boston and Linda A. Johnson in Trenton, N.J., contributed to this story.

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