Guidant accepts an offer of $24 billion

Guidant Corp.'s board accepted a sweetened, $24.2 billion buyout offer from Johnson & Johnson Friday, rejecting a richer Boston Scientific Corp. bid for the troubled cardiac device maker.

J&J agreed to pay $40.52 in cash and 0.493 share of Johnson & Johnson stock, with a total value of $71 a share, the companies said Friday in a statement on PR Newswire. Boston Scientific raised its offer Thursday by $1 a share to $73, half in cash and half stock, with a value of about $25 billion.

"From J&J's perspective, they're still paying less than $76, where they were at a few months ago," said analyst Keay Nakae with C.E. Unterberg Towbin in San Francisco, in an interview Friday. "If Boston Scientific is to come back, they will have to come back north of $75 to keep this alive."

Whichever company wins the bidding war will become the second- biggest player behind Medtronic Inc. in the almost $10 billion-a- year market for implantable pacemakers and defibrillators, the fastest-growing medical technology. The purchase of Indianapolis- based Guidant will be the biggest ever involving a maker of medical devices.

"This agreement with Johnson & Johnson provides significant financial value and certainty for shareholders," said Guidant Chief Executive Officer James Cornelius in the statement. "We will have the resources to continue to build upon the existing Guidant businesses in our pursuit of meaningful innovations to address cardiovascular disease."

Boston Scientific spokesman Paul Donovan, Guidant spokesman Steve Tragash and J&J spokesman Jeff Leebaw didn't immediately respond to messages seeking comment.

"It's going to be tough for Boston now," said analyst Bruce Nudell with Sanford C. Bernstein & Co. in New York, in a phone interview Friday. "This is a smart move on J&J's part. I think they're pushing in the direction of breaking the bank for Boston."

Guidant shares rose 44 cents to close at $70.84 in New York Stock Exchange composite trading, the highest price in three months. In the 13 months since J&J, based in New Brunswick, N.J., first agreed to pay $76 a share, Guidant stock has ranged from $56.53 to $74.95.

Johnson & Johnson, the 120-year-old maker of products ranging from Splenda artificial sweetener to insulin pumps, first agreed to pay $25.4 billion for Guidant in December 2004, then cut the price in November by $4 billion after Guidant recalled 109,000 defibrillators linked to at least seven deaths. Boston Scientific, based in Natick, Mass., first bid $25 billion on Jan. 8.

Recalls of faulty pacemakers and defibrillators hurt Guidant's sales and earnings and led to at least 60 product liability suits and probes by federal regulators. Defibrillators, about the size of an iPod and costing $20,000 to $30,000 each, are implanted in the chest and use electric shocks to restart a faltering heart. Pacemakers, which cost $8,000 to $12,000, send electrical signals to regulate a heartbeat that's too slow.

In its sweetened offer Thursday, Boston Scientific said it addressed concerns that the Guidant board had raised by increasing the price, agreeing to divest overlapping assets if needed to ensure antitrust clearance and promising to compensate shareholders if the deal doesn't close by March 31.

"They've made the deals comparable, apples to apples," said analyst Robert Faulkner of JMP Securities in New York in an interview late Thursday. "And they've done it in a clever way."

This week's revision to the agreement between Guidant and J&J added $50 million to the fee that Guidant would owe J&J if Guidant walks away from the deal, bringing the total to $675 million. Boston Scientific said Thursday it would reimburse Guidant for the fee.

J&J, part of the Dow Jones Industrial Average, had 2004 sales of $47.3 billion, more than eight times Boston Scientific's $5.62 billion. J&J's market capitalization of $187 billion is almost nine times Boston Scientific's $21 billion. Johnson & Johnson's board first authorized Chief Executive Officer William Weldon to open takeover talks with Guidant in July 2004, according to a J&J filing.

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