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.

Nevertheless, Boston Scientific is David taking on the J&J Goliath in this battle. Boston Scientific’s $22.5 market capitalization is about 1/10th that of J&J’s, and the company’s shares have fallen 22% during the past 12 months amid a decline in market dominance in the area of making heart stents that prop open arteries and help prevent heart attacks. Consequently, the proposed price is a big meal for Boston Scientific to eat and — even given the troubled past of the J&J-Guidant deal — J&J’s greater size gives it a clear leg up if a bidding war breaks out. Nevertheless, Boston Scientific’s bid is a gutsy move and clearly puts J&J in an awkward position. If J&J raises its bid, then that would contradict its recent moves to ratchet down the purchase price for Guidant. On the other hand, if J&J walks the deal, then the market could react negatively to the company’s growth strategy. Accordingly, one move that J&J might make is to convert its deal from cash-and-stock to all cash, which might induce Guidant shareholders to accept less from the company in return for receiving all cash rather than part cash and Boston Scientific stock.
By the way, there is no word yet on how the Lord of Regulation will attempt to take advantage of the competing bids for Guidant. ;^)