J&J; Deal Unsettles Temecula
In Temecula, hearts skipped a beat or two when Johnson & Johnson said it was buying Guidant Corp.
Guidant employs about 2,700 people in Temecula, where the cardiac-care company develops and manufactures a host of heart-surgery products. The significance of those paychecks -- not to mention the $3.7 million or so that Guidant pays in local property and state income taxes -- can’t be overstated.
“They’re incredibly important,” said Jim O’Grady, assistant city manager in Temecula, a city of 77,000 surrounded by wineries in the Temecula Valley.
O’Grady, for one, is hopeful that a takeover by Johnson & Johnson wouldn’t affect Guidant’s local expansion plans. But a lot of people in Riverside County were nervous Thursday, the day after the companies announced that they had reached a $25.4-billion deal.
Approved by the boards of both companies, the deal needs to be cleared by U.S. and European regulators, as well as Guidant’s shareholders. Some analysts warn that antitrust watchdogs might want J&J; to get rid of overlapping assets -- throwing into question the fate of Guidant’s Temecula campus. One of its chief products is bare-metal stents, devices used to prop open newly unclogged arteries. J&J; makes stents too.
J&J; executives said Thursday that they were certain the deal would win regulatory approval, suggesting that the companies’ stent-making operations were complementary. They said that J&J;’s Cordis Corp., maker of the company’s drug-coated stents, would be folded into a new cardiovascular device unit under the Guidant name.
“The reason to come together is to continue to drive growth and retain talent -- not cost cutting,” J&J; spokesman Jeff Leebaw said. “Are there likely to be synergies to be achieved? Yes, but it’s really premature to say” whether they would have any reverberations in Temecula.
The sale could close in the third quarter of next year. Under the terms announced Wednesday night, J&J; would pay $76 in cash and stock for each share of Indianapolis-based Guidant, which also makes pacemakers and implantable defibrillators.
On Thursday, Guidant shares fell 35 cents to $71.70 while J&J; rose $2.55 to $63.45, both on the New York Stock Exchange.
Even if J&J; was forced to sell Guidant’s stent-making operations, it wouldn’t necessarily mean bad news for Riverside County, said John Putnam, an analyst with Stanford Group Co.
“Conceivably [whoever buys it] could leave it in Temecula,” Putnam said. “It does not necessarily mean it might have to be moved.”
Indeed, because Guidant is known as a world-class manufacturer, J&J; would have to think “very hard” before tinkering with Guidant’s operations, said Bruce Nudell, an analyst with Sanford C. Bernstein & Co. “Guidant’s manufacturing know-how is something that would be very valuable to J&J; so I wouldn’t necessarily think that would be an initial target.”
Combining Guidant’s bare-metal stent operations with J&J;’s drug-coated stent capabilities would better position J&J; to battle Boston Scientific Corp., which boasts a larger share of the drug-coated stent market, said Mimi Pham, an analyst with American Technology Research.
“It would help them be more competitive,” Pham said.
In Temecula, assistant city manager O’Grady said, Guidant’s tentative plans include building facilities for research and development and corporate support.
That would free up space at the 500,000-square-foot Temecula campus, allowing the company to increase its production capacity. And the workforce would likely swell.
That could be significant for the community. “Their employees are exceedingly generous,” O’Grady said.
The Guidant Foundation donated nearly $175,000 to Southern California organizations in 2003, including $90,000 to help a local YMCA build a gymnasium and $50,000 to the American Red Cross to aid fire victims.
“Guidant has been an incredible contributor to the business community and the community itself in Temecula and the surrounding area,” said Alice Sullivan, president of the Temecula Valley Chamber of Commerce.
And Guidant employees -- the average salary is $37,641 -- help lift the local economy.
“I get a lot of people who work at Guidant coming over here and they only have good things to say about the company,” said Bob Thompson, whose veterinarian office is located in a strip mall across the street from Guidant.
Desiree Herrera, 22, said her fiancee Brian Hedlund, also 22, spent the past 18 months handling inventory for an assembly line at the Guidant campus.
“Even though it’s an entry-level position, he hopes to stay with the company,” said Herrera, who works for a cabinet finisher. “I hope they don’t move from here because Brian has a sister -- and she works there too.”
