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Dueling for Defibrillators

Updated from 1:34 p.m. EST

Boston Scientific (BSX - Get Report) served up a shocker Monday with an unsolicited offer for fellow medical-device maker Guidant (GDT), trumping a revised bid from rival Johnson & Johnson (JNJ - Get Report).

The cash and stock offer from Boston Scientific is worth $25 billion, or $72 a share. That's about $3 billion more than a recently revised offer by J&J for Indianapolis-based Guidant.

However, it's also about $4 a share less than the original cash and stock offer that J&J made last year . A series of recalls of Guidant products following the first bid prompted J&J to reduce its offer on Nov. 15. The revised J&J deal was worth $63.08 at the middle of last month and was valued at $63.43 as of Friday.

The boards of Guidant and J&J approved the revised offer, which still must be endorsed by the companies' shareholders. Guidant acknowledged receipt of the Boston Scientific bid, saying its board would consider it. J&J, based in New Brunswick, N.J., had no immediate comment.

The announcement by Boston Scientific -- whose market capitalization of $22.5 billion is about one-eighth the size of J&J's and about the same as Guidant's -- touched off furious trading among the three players.

Shares of Boston Scientific were erratic, falling as low as $25.51 and climbing as high as $27.73. The stock closed at $26.35, down 98 cents, or 3.6% on the day. Roughly 38 million shares traded, or more than eight times the average daily volume for the past three months.

Guidant jumped $6.16, or 10%, to $67.98, after going as high as $68.20, while J&J lost 16 cents to $61.05. Volume in both was heavy.

"We are surprised by this latest turn of events," says Joann Wuensch of Harris Nesbitt in a research note to clients. She retained her neutral rating on Boston Scientific. "Given Boston Scientific's market capitalization ... this appears to be a big nut to crack." She doesn't own shares, and her firm doesn't have an investment banking relationship.
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