Updated from 7:18 a.m. EST
The hard-fought battle for
looked over Wednesday with
Guidant, the Indianapolis-based medical device maker, agreed to be acquired by its Massachusetts suitor after
Johnson & Johnson
let pass a midnight deadline to sweeten its takeover offer.
Boston Scientific's plan to buy Guidant for $80 a share represents a price that, on a split-adjusted basis, the company's stock never reached during its 11-year run in the public markets.
, Guidant's former parent, first offered shares in the company in December 1994.
Any investors who have been holding Guidant's common since then are getting one rich payoff: Adjusted for stocks splits and dividends, Guidant closed at $3.55 a share on Dec. 14, 1994, translating to a profit of more than 2200% for those who were there at the beginning.
While analysts say J&J could have easily outbid Boston Scientific, the New Jersey health-care giant opted to quit the fight. One obvious reason is that for J&J to continue, it would have had to lift its bid above the original $76-a-share offer made in December 2004, and that never seemed likely.
After Guidant recalled around 100,000 heart devices last year, J&J revised its initial price lower by about $13, saying the pacemaker seller was worth closer to $63 a share. However, J&J did eventually raise its takeover price two times after Boston Scientific entered the fray, ultimately stopping at $71 a share, or $24 billion.
In the end, trying to trump Boston again "would not have been in the best interest of its shareholders," J&J said in a press release.
As a result, Guidant terminated its agreement to be acquired by J&J and canceled a previously planned meeting at which shareholders were to vote on the deal. Instead, Guidant will be acquired by Boston Scientific for what amounts to $27 billion, an aggressive offer that has led at least one analyst to
question the company's strategy.
"We believe the transaction and the strategic rationale for this combination are in the best interests of our patients, employees, customers and shareholders -- reflecting the full value of our firm," said Guidant's chairman and CEO, Jim Cornelius. "The combination of these two companies provides faster, more consistent revenue growth opportunities to shareholders."
Shares of both Guidant and Boston Scientific were lower following the news. Guidant fell $1.61, or 2.1%, to $75.17, and Boston Scientific lost 54 cents, or 2.3%, to $23.46. J&J's shares were down 37 cents, or 0.6%, at $58.99.
"We are excited about combining the talent and experience of Boston Scientific and Guidant employees," said Jim Tobin, Boston Scientific's president and CEO. "We look forward to working with Guidant to complete the transaction quickly and to creating a global leader in cardiovascular devices."
Guidant said its board and Boston Scientific's have approved the deal, which is subject to antitrust review and shareholder approval. However, if the Guidant deal doesn't close by the end of the first quarter, Boston agreed to pay Guidant shareholders interest amounting to 1.32 cents a share for every day the merger is delayed after March 31.
Meanwhile, Guidant is required under the terms of its previous agreement with J&J to pay a $705 million breakup fee since it terminated their merger deal. The fee, payable this month, will be reimbursed by Boston Scientific.
Boston Scientific has faced concerns that the acquisition could hamper its earnings growth and lead credit agencies to lower their ratings on the company's debt. Boston has said the deal may not be accretive until 2009, and some analysts believe it could be even later than that. So far its ratings haven't been cut.
The Boston Scientific bid includes an agreement to divest certain stent operations to
. Abbott, the Illinois-based drug and device conglomerate, also agreed to buy 56 million Boston Scientific shares for about $1.4 billion, giving it a 4% stake in Boston. Abbott is paying $4.1 billion for Guidant's vascular intervention and endovascular businesses, and will lend Boston Scientific $900 million.