Updated from 11:40 a.m. EST

Johnson & Johnson

(JNJ) - Get Report

reportedly is negotiating to buy

Guidant

(GDT)

for $24 billion, a transaction that would unite two big manufacturers of coronary devices.

The long-rumored talks could still fall apart over price and other issues, according to

The New York Times

. Shares of Guidant, which earned about $154 million on revenue of $925 million in the third quarter, rose $3.51, or 5.1%, to $72.26 Tuesday. Shares of J&J, which earned $2.07 billion on revenue of $11.6 billion in the same period, fell 91 cents, or 1.5%, to $60.92.

In Guidant, J&J would snag a fast-growing implantable cardioverter defibrillator (ICD) division that did $445 million in sales last quarter. It would also gain ownership of a big maker of so-called bare metal coronary stents, which have steadily lost market share to the drug-coated versions made by J&J and

Boston Scientific

(BSX) - Get Report

. The stents prop open arteries, allowing blood to flow through after the arteries have been cleared of plaque. The drug-coated stents release a chemical periodically into the vessels, reducing their rates of reclogging compared to the bare-metal stents.

While Guidant isn't expected to have a drug-coated stent on the market for several years, it recently received clearance to sell a metal stent for use in the artery that carries blood to the brain, and is a leader in the development of so-called absorbable stents.

Shares of rival medical device company

Medtronic

(MDT) - Get Report

rose 4 cents to $49.27 Tuesday, while Boston Scientific rose 6 cents to $34.56. Medtronic is the leader in ICDs, which control dangerously fast heartbeats, and it is working on a drug-coated stent.

Abbott Laboratories

(ABT) - Get Report

, which is also developing a drug-coated stent, said it was "not interested in acquiring the company."

The JNJ-Guidant rumor mill has been active for months, fueled in part by the announcement in early February that Guidant would co-promote J&J's Cypher drug-coated stent. J&J, one of the few drug companies that has been buying rather than shedding nondrug assets in recent years, is viewed by rating agencies as having perhaps the strongest balance sheet among Big Pharma companies. It certainly has the financial foundation to make a big deal.

Acquiring Guidant "makes strong strategic sense for J&J ... as it would address a key void by providing the company with access to the fast growing cardiac rhythm management market," said Katherine A. Martinelli, of Merrill Lynch, in a Tuesday research note. The principal areas of cardiac rhythm management are ICDs and pacemakers. ICDs are the fastest-growing component, and recent changes in Medicare reimbursement should provide bigger markets for all ICD makers.

Martinelli, who is neutral on J&J, said the deal could add a few pennies to J&J's earnings per share in 2006. She said it's always possible there might be another bidder for Guidant, but given J&J's "size and cash flow power," such a bidding war is unlikely, she said. (She doesn't own shares in J&J; her firm has a non-investment banking relationship with J&J.)

"Although the transaction has been speculated for some time, the suggestion of a deal in a broad public forum is likely to have implications for several stocks in our universe," said Lawrence Keutsch, of Goldman Sachs, in a research note on Tuesday.

He figures Guidant will continue to trade higher due to its strength in the ICD market and to the predicted U.S. launch of its drug-coated arterial stent in 2007. JNJ's shares should trade down; if the deal is consummated, he said the transaction could be dilutive by 5% of J&J's earnings per share next year. He said there would be "little competitive change" for Boston Scientific.

Keutsch has a neutral rating on J&J and an outperform rating on Guidant. He doesn't own shares in either company; his firm has an investment banking relationship with both companies.

Merrill Lynch's Martinelli said she doubted there would be much of an antitrust problem with a Federal Trade Commission's review of a proposed JNJ-Guidant deal. She said there could be added pressure on Boston Scientific and Medtronic because a combined J&J-Guidant would be a stronger medical device player. And she speculated that

St. Jude Medical

(STJ)

, which has been the subject of takeover rumors in the past, could wind up in the arms of a suitor, too.

Shares of St. Jude Medical were up 44 cents, or 1.1%, to $40.37. Shares of Abbott Laboratories gained 31 cents, or 0.7%, to $43.28.