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."

Not So Secret

Though Boston Scientific's offer for Guidant became known to the public just a day ago, the company made inquiries about such an arrangement last month. During their renegotiation talks, Guidant notified J&J that on Nov. 1 Boston said it wanted to discuss the possibility of a merger. However, Guidant didn't actively use the potential new suitor as a negotiating tool.

"In such a tenuous position they didn't want to walk away from 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.

Consolidating Options

Now that J&J's interest in heart devices is crystal clear, Minnesota's St. Jude could provide an option for gaining entry into the market for defibrillators and other instruments. St. Jude rose $1.05, or 2.1%, to $51.61 Tuesday after gaining nearly 5% in the previous session.

According to Brozak, J&J will look to make an acquisition in order to expand its offerings, and for St. Jude, he says, "at the right price, anything is possible." WBB doesn't have an investment banking relationship with Guidant, J&J, Boston Scientific or St. Jude.

Ben Andrew, an analyst at William Blair, says that at the very least, St. Jude is a strong candidate for a buyer, and soon.

"We view St. Jude as the cleanest entry point for an acquirer looking to gain access to the rapidly growing 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.

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