The battle for control of Guidant Corp., a maker of implantable heart devices, took a new turn last night as Johnson & Johnson raised its bid to $23.2 billion and reached a new agreement with Guidant, pre-empting an offer from Boston Scientific.
But outcome was quickly thrown into question when Boston Scientific dismissed Guidant's agreement saying: "Our discussions with Guidant are ongoing. We intend to vigorously pursue this transaction to its completion."
Several people close to Boston Scientific suggested last night that the company was planning to make an offer higher than its original $25 billion. But it is unclear how much higher Boston Scientific may go.
The company "could pull off a $76 offer, but in doing so it would be pushing itself towards junk credit status," Matthew J. Dodds, a Citigroup analyst, wrote in a note to investors.
Over the past 48 hours, Johnson & Johnson and Boston Scientific have played cat and mouse as they sparred for control of Guidant and a share of the $10 billion market for implantable heart devices such as defibrillators.
Guidant said yesterday that its board had accepted a lower offer from Johnson & Johnson - valued at $68.06 a share compared with Boston Scientific's $72 - because the deal could be completed quicker.
But people involved in the negotiations suggested that Guidant's agreement with Johnson & Johnson was more of a tactical maneuver, intended to elicit even higher bids.
Each company has much to gain in the fight, as well as something to lose. Of course, Guidant shareholders have seen a payoff.
Guidant shares closed yesterday at $70.44, up $1.05 a share, after The New York Times reported that Johnson & Johnson had made a new approach.
A few months ago, Guidant stock plummeted after Johnson & Johnson abandoned its original $25.5 billion offer, asserting that Guidant had been materially damaged after its failure to publicly disclose device defects that led to a number of recalls, investigations and lawsuits.
Johnson & Johnson soon struck a deal with Guidant valued at $21.5 billion, or about $64 a share.
Terms of offer
Under yesterday's offer, Guidant shareholders will receive $37.25 in cash and 0.493 share of Johnson & Johnson stock for each Guidant share.
In announcing the new deal, executives of Guidant and Johnson & Johnson addressed the higher offer of Boston Scientific.
"This agreement with Johnson & Johnson provides significant financial value and certainty for our shareholders," said James M. Cornelius, Guidant's chairman and chief executive officer.
As part of that same news release, his counterpart at Johnson & Johnson, William C. Weldon, stated, "We strongly believe that our union with Guidant is that only one that can deliver on that promise" of creating an outstanding cardiovascular device business.
It is expected that the new Johnson & Johnson plan will be voted on at a meeting of Guidant shareholders Jan. 31. But any new offer from Boston Scientific could complicate those plans or derail them.
While the Johnson & Johnson offer is lower, the apparent argument is that it is better because it has regulatory approval and can close quickly.
Johnson & Johnson and Boston Scientific have said they see Guidant as a way to expand their presence in the cardiac device market.