Cordis Stock Plunges on J&J; Delay : Health: Johnson & Johnson’s extension of due diligence deadline triggers fears that it may terminate merger agreement.
Cordis Corp. stock plunged Wednesday on fears that Johnson & Johnson may terminate its $1.8-billion agreement to buy the maker of medical devices.
Cordis shares fell as much as $13.75 to $92.75 after Johnson & Johnson, which agreed to buy Miami-based Cordis for $109 a share in stock, unexpectedly announced it was extending a study of the company’s operations. Cordis shares recovered some ground but ended down $11.25 at $95.25 in active trading on Nasdaq.
Johnson & Johnson rose 37.5 cents to $86.875 on the New York Stock Exchange.
Some of Cordis’ most successful devices are used in conjunction with Johnson & Johnson products for the treatment of clogged arteries.
In a brief statement, the companies said Johnson & Johnson was extending the period for it to review Cordis’ finances until Jan. 22. The period had been set to expire Wednesday.
Johnson & Johnson spokesman Robert Kniffin declined to discuss the reasons for the extension of the due diligence process. He also would not comment on whether Johnson & Johnson is committed to the deal.
Kniffin also noted that proxies will not be mailed to Cordis shareholders until due diligence is completed.
A Cordis spokesman could not be reached for comment.
But analysts and takeover specialists said the transaction is now in doubt, especially because the statement did not stress that the companies remain committed to the transaction. Rather, the statement noted that New Brunswick, N.J.-based Johnson & Johnson has the right to terminate the agreement based on its review.
“It is a little troubling in that maybe J&J; has found something out,” said Kurt Kruger at Hambrecht & Quist.
But Eli Kammerman, an analyst at Salomon Bros. Inc. in New York, said he thinks investors were overreacting to the lengthened due diligence period. “The delay is simply a logistical delay,” he said. “Investors are misinterpreting the announcement.”
The surprise statement is the latest action in Johnson & Johnson’s 2 1/2-month attempt to buy Cordis. The health-care giant launched a hostile $1.6-billion cash bid in October after Cordis rejected a friendly overture.
Wall Street analysts said Johnson & Johnson’s hostile bid for Cordis was its only unfriendly action in memory.
Although Cordis originally insisted it wanted to remain independent, the two companies in November agreed on a stock transaction valued at $1.8 billion. Under terms of the agreement, shareholders are to receive $109 of Johnson & Johnson stock for each of Cordis’ 17.6 million shares outstanding.
Excluding about $100 million of Cordis’ cash on hand, the acquisition has an equity value of $1.8 billion, Johnson & Johnson said.
Analysts have said the Cordis acquisition would give Johnson & Johnson a major advantage over competitors by allowing it to sell a package of its successful coronary stent with balloon catheters and diagnostic products offered by Cordis.
Last week, Johnson & Johnson agreed to divest a unit that makes cranial shunts in order to satisfy federal concerns that the Cordis acquisition would violate antitrust laws.
But Wall Street sources speculated that divestiture is unrelated to the due diligence extension. Instead, they said it may be linked to one of the many patents held by Cordis.
In angioplasty, doctors snake a catheter to the heart through a vein in the leg, then inflate a balloon on the end to clear blockage. J&J;’s Palmaz-Schatz stent, which is used in about a quarter of angioplasty procedures, is implanted in the blood vessel to prevent reclosing.
