Spread on Guidant-J&J Deal Looks Pretty Rich

"Compared to most deals, yes, there is risk, because the fundamentals of the acquired company are in flux and uncertain," says Robert Faulkner, an analyst at JMP Securities who covers the stock. "If the sales of the cardiac rhythm management products [the defibrillators and the pacemakers] continue to decline, J&J could walk out of the deal. It's less the existence of future lawsuits than the trajectory of the sales that may trigger another cancellation of the deal," he says.

But Cohen says that spreads are unnecessarily wide because of fear that was exaggerated after J&J's first withdrawal, an event that -- along with several other blowups -- spooked the entire arbitrage community. "The Street is very nervous. That is because a number of situations have been treacherous," he says.

"There have been risks with the deal being called off and the litigation," says the other manager. "But overall, it is the market's nervousness. There is still a feeling that the Johnson & Johnson deal has some skittishness. And I don't share that feeling," he says.

"It's a very interesting opportunity," says Cohen.