Gosh, just a little over two months ago, Johnson & Johnson was threatening to walk on its proposed $25.4 billion ($76 per share) merger with Guidant. J&J eventually agreed to stay in the deal after Guidant agreed that J&J could knock $4 billion off the purchase price.
But then, Boston Scientific got in the game for Guidant. Before you know it, J&J was making nice with Guidant and had increased its bid for Guidant back up to $24.2 billion ( $40.52 in cash and .493 shares of J&J stock for each Guidant share) with a quick closing date. Guidant’s board accepted that revised offer and J&J heaved a sigh of relief until . . .
Boston Scientific announced this morning that it had increased its bid for Guidant to an eye-popping $80 a share or more than $27 billion. With that offer, it now appears that J&J may have to raise its offer to above the $25.4 billion, $76 per share offer that J&J originally agreed to pay for Guidant.
Does anyone else get the sense that J&J wished it had never heard of such things as “material adverse effects” and Eliot Spitzer?
Update: And Guidant has switched allegiances and now supports Boston Scientific’s new bid.

Back in 1997, shortly after Steven Jobs had returned to be Apple Computer’s CEO in what at the time appeared to be a last-ditch attempt to revive the flagging company, Dell, Inc. founder and chairman Michael Dell was asked at a technology conference in front of thousands of techies what might be done to fix Apple:

“What would I do?’ Dell replied. “I’d shut it down and give the money back to the shareholders.”

Well, times change and iPods became popular, so a 12% surge in Apple’s stock price last week pushed the company’s market capitalization to $72.13 billion, which made it greater than Dell’s $71.97 billion market cap. Given that milestone, how much do you think Jobs enjoyed sending the following email to Apple’s employees at the end of last week as reported in this NY Times article?:

“Team, it turned out that Michael Dell wasn’t perfect at predicting the future. Based on today’s stock market close, Apple is worth more than Dell. Stocks go up and down, and things may be different tomorrow, but I thought it was worth a moment of reflection today. Steve.”

Nevertheless, Dell’s personal net worth estimated to be in excess of $14 billion still dwarfs that of Jobs, who is “only” worth five billion or two. Several years ago, when Apple wasn’t doing as well as it is now, Jobs traded options on Apple stock that would now be worth $3.3 billion for a more conservative package. So, based on Apple’s current $80 per share value, Jobs gave up about $2.5 billion in that deal. Jobs’ main wealth now is in his stake in the animation company Pixar. That stake is valued at around $3.5 billion.

In response to Johnson & Johnson’s increased bet earlier this week for heart-device maker Guidant, Boston Scientific has matched J&J’s bet and upped the ante.
Gee, wasn’t it just a few weeks ago that J&J was getting assistance from the Lord of Regulation in driving the price of Guidant down?
Boston Scientific’s sweetened bid is valued at $25.55 billion and gives Guidant’s board board until Friday afternoon to fish or cut bait on the offer. Boston Scientific’s new offer is valued at $73 per Guidant share (up from its earlier $72 per share offer) and deletes most of the conditions in prior bid that made J&J’s competing offer (valued at $67.92 per Guidant share) look to be more likely to close and, thus, a better risk for Guidant. What a far cry from the $56 per share price of Guidant’s shares just two months ago when J&J was threatening to walk the deal.
Update: Guidant Corp.’s board accepted the Johnson & Johnson offer late Friday and rejected the larger but potentially more time-consuming competing Boston Scientific offer. The agreement is valued at $24.2 billion, consisting of $40.52 in cash and .493 shares of J&J stock for each Guidant share and is scheduled to close as early as Jan. 31. Boston Scientific — which, unlike J&J, would have still had to obtain government regulatory approval of its bid — had hoped to close its proposed deal by March 31.

Just when you think Johnson & Johnson might pick up its chips, accept its $625 million breakup fee and go home from the poker game with Boston Scientific Corp. over Guidant Corp., J&J sweetened the pot with a $23.2 billion bid for the Indianapolis-based, heart device maker. Earlier posts on the competition for Guidant can be reviewed here.
J&J’s new bid, which both J&J and Guidant boards have accepted, increased its value to $68.06 for each Guidant share from the $64 per share value of its previous offer. Boston Scientific’s jilted offer was for about $25 billion (or $72 a share), but is not as certain to close and does not have the liquidity features of the J&J bid. The market responded to the news of a possible all-out bidding war by increasing the value of Guidant’s shares over $1 to $70.44 on the New York Stock Exchange.
It’s an incredible turnaround for Guidant. After making a $25.4 billion ($76 per share) offer in December 2004, J&J started crawfishing on the deal last year by lowering its bid to below $22 billion ($63 a share) when Guidant’s market share dropped from about 35 percent to 25 percent amidst reports of patient deaths caused by allegedly defective products. That development induced Boston Scientific to jump into the fray with its competing $25 billion bid and — presto! — Guidant had gone in a matter of days from being worked over the coals by one buyer to being the darling of two.
Although much smaller and more highly-leveraged than J&J, Boston Scientific announced in response to J&J’s increased bid that it is studying whether to increase its competing bid for Guidant. Boston Scientific’s shares have decreased in value more than 40% from their peak value in 2004 as the company continues to rely heavily on sales of its primary product, the Taxus Express cardiac stent. Thus, Boston Scientific continues to have incentive to pursue the acquisition of Guidant, which would diversify Boston Scientific’s product line and provide the basis for greater growth potential. Stay tuned.

It’s a pretty sure sign that securities regulators do not have enough to do when they are busy trying to protect the likes of Carl Icahn.
As noted in this earlier post, Icahn was outmaneuvered in late 2004 by New York-based Perry Corporation in connection with Mylan Laboratories’ bid for the generic drug maker, King Pharmaceuticals. Icahn — who owned a bit less than 10% of Mylan — pursued his typical strategy of attempting to extract some ransom from Mylan’s takeover bid by opposing the company’s bid for King.
But Perry’s moves in connection with the proposed deal made Icahn look totally 1980’s in comparison. Perry owned a big chunk of King shares and would have made around $28 million if Mylan’s bid had been successful. However, in making its play, Perry set up an elaborate swap trade with Bear Stearns and Goldman Sachs so that the block of Mylan’s voting equity that Mylan controlled (which was just a tad larger than Icahn’s) had limited exposure to fluctuations in Mylan’s share price. Perry accomplished this by buying its stake in Mylan while having Bear Stearns and Goldman Sachs “short” the same number of shares.
Well, as the earlier post indicated, Perry’s moves outraged Icahn, who filed a lawsuit and started sounding as if he was the spokesman for CALPERS’ shareholder activist committee. Alas, Mylan’s bid for King collapsed, Icahn dropped his lawsuit and most folks thought that was the end of the entertaining match of wits between well-heeled investment types.
But not so fast. Perry disclosed to its investors this week that the SEC recently sent a Wells notice to Perry informing the hedge fund that the agency is considering a civil enforcement action over the fund’s Mylan-King hedging strategy. According to Perry’s disclosure, the SEC’s enforcement division is recommending that the agency accuse Perry of violating the antifraud provisions of securities laws, which require large investors to disclose pertinent financial information about their holdings. Perry is currently preparing a response to the Wells notice — called a “Wells submission” — in which the firm will challenge the basis of the SEC’s proposed action against the firm. That’s not surprising given that Perry’s hedging strategy in regard to Mylan-King deal was utterly transparent and reported in the business sections of virtually every major media outlet.
In the meantime, however, we can all rest more comfortably with the knowledge that the SEC is protecting Mr. Icahn. He has created a tremendous amount of shareholder wealth over his long career. It’s nice to see that the SEC is actively protecting him in his twilight years when he really needs it. ;^)

Maybe if Enron hadn’t collapsed, it wouldn’t have taken this long for this new market to develop.
Tyler Cowen points us to the The Ticket Reserve, a web-based company that has created an options market for tickets to championship sporting events. An account holder can buy and sell options to purchase tickets at face value to popular sporting events such as NFL playoff games, BCS bowl games, and NCAA Basketball Tournament games.
Thus, you could currently purchase an option to buy two upper deck tickets to the Final Four to see the Texas Longhorns play for $169. If the Horns make it to the Final Four, then you would pay the face value of the tickets ($140), plus the $169 option price. Your risk is that the Horns do not make the Final Four, in which case your option becomes worthless and you would be out the $169 option price. While you wait for the Final Four, you can sell your option for whatever price the market will bear, presumably for more than $169 if the Horns play particularly well or for less if one or two of the Horns’ starters are injured before the NCAA tournament. Thus, if you’re a player in this market, the key would be to pick as many relatively low-valued darkhorse teams as possible early and then ride the speculation that the teams will do well in the NCAA tournament to big profits in the sale of your options during the run-up to the NCAA tournament.
Inasmuch as this type of market is cut out for the Sports Economist, Brad Humphreys also provides his insights.

Author, Apple Mac evangelist, and Silicon Valley venture capitalist Guy Kawasaki has an interesting blog in which he follows up this clever post on the “Top Ten Lies of Venture Capitalists” with this hilarious post on the “Top Ten Lies of Entreprenuers,” which include the following (see Kawasaki’s post for his explanation of each lie):

1. ìOur projections are conservative.î
2. ìGartner says our market will be $50 billion in 2010.î
3. ìBoeing is going to sign our purchase order next week.î
4. ìKey employees are set to join us as soon as we get funded.î
5. ìNo one is doing what we’re doing.î
6. ìNo one can do what we’re doing.î
7. ìHurry because several other venture capital firms are interested.î
8. ìOracle is too big/dumb/slow to be a threat.î
9. ìWe have a proven management team.î
10. ìPatents make our product defensible.î
Bonus lie: ìAll we have to do is get 1% of the market.î

My contribution: “If you can help us solve this initial cash flow issue, we’ll be just fine.”

Overall, the U.S. airline industry improved a bit last week as United Airlines parent UAL Corp. announced that it received creditor approval of its chapter 11 plan to emerge from bankruptcy next month as low-cost airline Independence Air announced its plan to liquidate rather than to attempt to emerge from its recently-filed reorganization case. Here are the earlier posts on the UAL financial problems and the Independence Air bankruptcy.
As noted earlier here, UAL has arranged a $3 billion all-debt exit financing package to emerge from chapter 11 funded by J.P. Morgan Chase & Co., Citigroup Inc. and General Electric Co. About half of that credit facility is dedicated to repay the $1.3 billion debtor-in-possession loan that has kept United operating through its over-three year adventure in Chapter 11.
United’s plan reminds the market of the risks involved in investing in or extending trade credit to a highly-leveraged legacy airline these days. Although the plan proposes to pay secured, priority tax, and administrative claims in full, UAL’s $20 billion in unsecured claims will receive a dividend of between 4% to 8% of such claims in the reorganized UAL common stock while existing common and preferred equity receive nada. UAL’s restructuring advisers have estimated that the reorganized UAL will have an equity value of about $1.9 billion upon emergence from bankruptcy, but the market is already somewhat bullish on the reorganized United (do people ever learn?) — UAL bonds are currently trading at much stronger prices than the four to eight cents on the dollar that UAL unsecured claims will receive under the plan.

Continue reading →

This NY Times article reports on the Russian government’s removal of the final restrictions on foreign equity investment in the state-controlled Gazprom, which is Russia’s natural gas monopoly, Russia’s largest company and the producer of a third of the world’s supply of natural gas. Analysts who follow Russian energy markets are predicting that the company will double in value in the next year or two after President Putin signed a decree last week lifting a 20 percent cap on foreign ownership and a prohibition on nonresidents owning shares traded on Russian domestic stock exchanges.
Meanwhile, in case you feel particularly enthusiastic about making that bet, this London Telegraph article reminds us of one of the more knotty risks of investing in Russian companies:

A former top executive in Russian oil giant Yukos, who is wanted by the Russian government to face fraud charges, will not be extradited, a [UK] judge ruled yesterday.

Interestingly, it’s a good thing that executive was not an executive for a UK bank doing business in the U.S.

This earlier post from a year and a half ago checked in on Ft. Worth billionaire Richard Rainwater and his typically contrarian bet on the telecommunications industry. Following on that theme, this recent Oliver Ryan/Fortune article catches up with Rainwater, who continues to live quietly in Ft. Worth with his wife, Darla Moore, the former Chemical Bank bankruptcy-financing star. Rainwater aptly describes his investment strategy as follows: “Most people invest and then sit around worrying what the next blowup will be. I do the opposite. I wait for the blowup, then invest.”
Rainwater, who is currently sitting on about half a billion of cash, is refining his contrarian investment perspective:

The next blowup, however, looms so large that it scares and confuses him. For the past few months he’s been holed up in hard-core research modeóreading books, academic studies, and, yes, blogs. Every morning he rises before dawn at one of his houses in Texas or South Carolina or California (he actually owns a piece of Pebble Beach Resorts) and spends four or five hours reading sites like LifeAftertheOilCrash.net or DieOff.org, obsessively following links and sifting through data. How worried is he? . . . “I’m long oil and I’m liquid,” he says. “I’ve put myself in a position that if the end of the world came tomorrow I’d kind of be prepared.” . . . This is the first scenario I’ve seen where I question the survivability of mankind. I don’t want the world to wake up one day and say, ‘How come some doofus billionaire in Texas made all this money by being aware of this, and why didn’t someone tell us?'”

Rainwater has had his share of missed bets, although his successful ones far exceed the failed ones. His wife jokingly calls him “Dr. Doom,” but he is no crackpot, so take a moment to read the entire interesting piece.