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.