Boston Scientific Corp made a bid to become the largest heart device maker in the U.S. by making a $25 billion competing offer for Guidant Corp yesterday in an attempt to derail a troubled lower-price agreement between Guidant and Johnson & Johnson (earlier posts on the J&J bid for Guidant are here).
Boston Scientific’s offer consists of $12.5 billion in cash and $12.5 billion in stock, values Guidant stock at $72 per share and would have Boston Scientific’s shareholders owning 65% of the combined company. That represents a premium of 14% over the J&J offer, which values Guidant at $63.43 a share. The theory behind the Boston Scientific proposal is that a combined Boston Scientific and Guidant would become the leading U.S. company specializing in cardiac rhythm management (“CRM”) equipment, which includes pacemakers and heart defibrillators that control rapid and potentially deadly heartbeats. In so doing, the Boston Scientific-Guidant alliance would attempt to become the primary company that doctors would look to for equipment and products to treat a wide range of cardiovascular ailments. Guidant’s board is expected to evaluate in the next day or two whether Boston Scientific’s proposal could lead to an offer superior to J&J’s, which includes a $625 million breakup fee that Boston Scientific would have to pay J&J if Guidant accepts the Boston Scientific bid.

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Sometimes it’s hard to keep up with all the muddled thinking that is passed off as keen economic insight in much of the mainstream media.
My thoughts along these lines started last week with this David Ignatius/Washington Post op-ed in which Ignatius extols the virtues of undertaking a “fundamental national mission, equivalent to President John F. Kennedyís call to put a man on the moon” to solve everything from General Motors’ current problems to dependence on foreign oil, Americansí high living, and the decline of manufacturing in America. Ignatius’ enthusiasm is fueled by Amory Lovins recent book, Winning the Oil Endgame: Innovation for Profits, Jobs and Security (RM Institute 2004), which calls for a big government plan of higher taxes and government subsidies to facilitate fundamental change in the materials used to build such big things as automobiles and buildings. Although Ignatius admits that he knows nothing about the financial viability of Lovins’ big plan, that doesn’t stop him from endorsing it enthusiastically:

I’m no technologist, so I can’t evaluate the technical details of Lovins’s proposal. What I like is that it’s big, bold and visionary. It would shake an America that is sitting on its duff as foreign competitors clobber our industrial giants, and it would send a new message: Get moving, start innovating, turn this ship around before it really hits the rocks.

Of course, Ignatius ignores the little detail of what happens if those carbon-fiber composite automobiles that are created as a result of the government money don’t sell all that well. I guess we’ll just have to work around that later.

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Two large private equity funds — Carlyle/Riverstone and Goldman Sachs Capital Partners — announced yesterday that they are investing $500 million in Cobalt International Energy LP, a new Houston-based exploration company comprised mainly of former Unocal Corp. executives. Former Unocal president Joe Bryant orchestrated the deal and will be the CEO of Cobalt. The Chronicle article on the deal is here.
Although the investment is relatively small by oil and gas industry standards, the investment reflects an increasing trend of private equity funding a proven management team in a promising industry. Given the relatively small capitalization, Cobalt will identify new prospects and then hedge its risk by laying off a substantial portion of its interest in the prospect to investment partners who will share the risk of capital-intensive drilling and completion activities on the prospects, particularly in regard to the deepwater prospects in the Gulf of Mexico that will be one of the company’s target areas.