Updated from 9:43 a.m. EST

Johnson & Johnson ( JNJ) and Guidant ( GDT) are back at the altar.

After saying it wanted out of its $25.4 billion takeover bid following a series of regulatory setbacks, J&J agreed Tuesday to acquire the medical device maker for about $21.5 billion, or $19 billion net of Guidant's cash. The new bid will pay Guidant shareholders $63.08 in cash and stock, down 17% from the old offer of $76 a share.

"The board believes that it is in the best interest of shareholders to proceed with the merger agreement at the revised terms," Guidant said. "Our enthusiasm for this merger and its potential continues. This agreement makes sense for Guidant shareholders and its employees."

Guidant, whose stock plunged from the low $70s after the first agreement fell apart, rose 8.2% to $62.50. J&J gained 3.8% to $62.83 as the market rendered a positive verdict on the value being transferred under the new price.

The new deal, which comes out to $33.25 in cash and 0.493 of a J&J share, was approved by both companies' boards. Guidant shareholders must still approve it before its expected close in the first quarter of 2006.

Tuesday's news should end the year's most contentious merger saga, one that has repeatedly confounded shareholders on both sides, led to a last-ditch lawsuit and infuriated a vocal community of merger arbitrage hedge funds.

"We are delighted that our companies have reached an accord," J&J said. "Our agreement demonstrates that we remain committed to the goal of together building an extraordinary cardiovascular business that can deliver better medical options sooner to millions of patients."

Assuming the deal closes on Jan. 1, J&J CEO Robert Darretta expects the company's 2006 earnings to be cut by 8 cents to 11 cents, excluding noncash charges. He says the deal should be modestly dilutive to 2007 earnings but add strongly to profits thereafter.

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