Boston Scientific's ( BSX) holding the exit door wide open, but what remains to be seen is whether Johnson & Johnson ( JNJ) will walk through it or stick around for a fight. Hardly a month ago, J&J was about to be dragged into court for threatening to abandon would-be merger partner Guidant ( GDT) after saying their $76-a-share agreement was no longer tenable. Eventually the two sides agreed to get along, and they worked out a new deal that valued Guidant north of $63 a share. Meanwhile, Boston Scientific was laying its own plans, and its strategy is a secret no more. By swooping in Monday with a proposal to buy Indianapolis-based Guidant for $72 a share, Boston Scientific now threatens to leave the formerly reluctant J&J as the odd man out. J&J waited a day to respond to the challenge, but when it did, the New Brunswick, N.J., health care concern said its offer "represents full and fair value based on extensive evaluation and due diligence and is in the best strategic interest of Guidant, its customers and patients."
the J&J deal," says Steve Brozak of WBB Securities. "If they started negotiations with another party, that would give J&J an opportunity to back out entirely." Boston Scientific, whose proposal for Guidant is valued at about $25 billion, or $72 per share, is more than $8 above J&J's revised bid, but $4 short of J&J's original terms announced last December. Should J&J opt to stay, the big question is whether it will be willing to part with more money to make the merger happen.
Guidant's shares closed down $1.10, or 1.6%, at $66.88, suggesting investors aren't ready to claim victory just yet. J&J was off 58 cents, or 1%, at $60.47, and Boston Scientific shares slipped 1 cent to $26.34. J&J, Guidant and Boston Scientific, of Natick, Mass., compete in the coronary-stent market. Stents are devices that are used to hold open clogged arteries. The acquisition of Guidant would expand J&J's reach into the medical-devices arena, where its Cordis unit already operates. Boston Scientific, meanwhile, says a merger with Guidant, whose series of product recalls led to J&J lowering its offer price, would "create the world's leading cardiovascular device company accelerating diversification and growth." Even if Boston Scientific and Guidant end up joining forces, that doesn't necessarily spell doom for J&J. That's because there's heart-device maker St. Jude ( STJ), the No. 3 player in cardiac-rhythm management behind Medtronic ( MDT) and Guidant. St. Jude's name has in the past come up as a takeover possibility, and this time's no different.
cardiac-rhythm management market and would not be surprised by a takeout in the coming year," he wrote in a research note.
Andrew says that St. Jude is also well-positioned in the market for neurological devices, especially with its
recent purchase of Advanced Neuromodulation Systems. William Blair has received compensation or expects to be compensated by St. Jude for investment banking services. Another way St. Jude could factor into the equation would be as a possible acquirer of assets a combined Guidant-Boston Scientific might have to shed in order to gain antitrust clearance from regulators -- although Medtronic and Abbott Labs ( ABT) could be takers, as well. For now, Boston says its proposal for Guidant is better than J&J's and contends its offer could be closed quickly. Brozak isn't as optimistic, saying Guidant would need weeks if not months to complete its due diligence, meaning the process wouldn't be finished by the end of the year. And at least one analyst isn't going to be entirely surprised if J&J declines to hit back at Boston Scientific. "Given all the trials and tribulations, we doubt JNJ will attempt to make a counter offer -- but as investors have learned over the past few years to never say never," Jason Wittes of Leerink Swann wrote in a research report. A director of Guidant serves as a director of Leerink Swann, but the firm doesn't provide investment banking services for the company.