Guidant Takes J&J to Court

Updated from 10:45 a.m. EST

Guidant (GDT) apparently doesn't plan to let Johnson & Johnson (JNJ) get away without a fight.

The Indianapolis-based medical-device maker, hit by a number of product recalls this year, said Monday that it's filed a lawsuit in New York to compel a reluctant Johnson & Johnson to complete the companies' $25.4 billion merger.

The companies had been waiting for Federal Trade Commission clearance to seal the deal, but after receiving government approval last week, Johnson & Johnson was hardly doing cartwheels. The New Brunswick, N.J., health-care giant said not only were Guidant's short-term results and long-term outlook affected by its heart-device recalls, but the matter was damaging enough to free Johnson & Johnson from its obligation to close the deal according to the $76-a-share agreement.

Johnson & Johnson had been fairly quiet leading up to the final stage of regulatory approval of the merger. According to Guidant's lawsuit, within minutes of the FTC's go-ahead Johnson & Johnson said it wouldn't close the merger as it was structured.

As for the litigation, Johnson & Johnson said in a press release that it will "vigorously oppose the lawsuit and take all necessary action to enforce its rights under the merger agreement."

Guidant says Johnson & Johnson is legally obligated to complete the transaction and wants to back out "based on a meritless assertion that Guidant suffered a material adverse effect within the meaning of the merger agreement." Johnson & Johnson last week said the companies had discussed restructuring the deal, but the talks failed to result in an agreement.

The companies have entered a legal tug of war and dug in their heels, but "you can make strong cases for either avenue," said Stephen Brozak of WBB Securities in Westfield, N.J.

Brozak believes Johnson & Johnson has made its position clear, and the court fight isn't going to lend itself to a remedy Guidant will like.