Medical Device Link.

Originally Published MX January/February 2006

BUSINESS NEWS

By the middle of November, Johnson & Johnson Inc. (J&J; New Brunswick, NJ) probably thought it had resolved the problems surrounding its nearly year-long move to acquire Guidant Corp. (Indianapolis). But less than three weeks later, rival cardiac device maker Boston Scientific Corp. (Natick, MA) emerged with a bid that put J&J's entire deal on ice.

Boston Scientific's bid of nearly $25 billion quickly garnered the interest of Guidant management and shareholders. It was about $4 billion more than J&J's renegotiated offer, which Guidant appeared to reluctantly accept following months of damaging disclosures and recalls of nearly 300,000 of its implantable cardioverter defibrillators (ICDs) and cardiac pacemakers.

The bid is only $400,000 less than J&J's original $25.4 billion offer, and was made just days after Boston Scientific was itself rumored to be a takeover target.

J&J may counter with a higher offer, but many analysts believe the company has dug in its heels over concerns about paying more and then spending years and millions of dollars defending itself against a bevy of lawsuits stemming from Guidant's past product woes. If it walks away, J&J would continue its absence from the high-margin cardiac rhythm management (CRM) segment.

The Guidant acquisition would make Boston Scientific a powerful, one-stop resource for a wide range of cardiovascular devices. Guidant's CRM sales are expected to make a near-full recovery by the end of the current quarter, which may explain why Boston Scientific's management does not appear to be terribly concerned about legal exposure going forward.

The stage could be set for plenty more back-and-forth jockeying for position among the three players in the weeks and months ahead. Then again, one company might walk away and the Guidant deal could be completed sooner than expected.

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