Guidant Sues J&J; to Force Deal’s Closure
Guidant Corp. sued Johnson & Johnson on Monday in an attempt to force it to complete a $25.4-billion acquisition of the medical device maker, which has been roiled by a series of recalls.
Analysts and lawyers said the suit signaled that the two sides had failed to renegotiate the acquisition, which had been slated to close last week, and that the deal probably would dissolve.
Meanwhile, Indianapolis-based Guidant’s problems mounted as it reported sharply lower third-quarter earnings Monday and disclosed that it was under investigation by the Securities and Exchange Commission. Guidant said the probe concerned product disclosures and trading in the company stock.
The lawsuit, filed in U.S. District Court in Manhattan, comes after Friday’s deadline passed for completing the acquisition as specified under the deal the two companies reached Dec. 15.
It followed days of speculation that J&J; would walk away after warning Wednesday that it was no longer obligated to complete the deal because the recalls have had a material adverse effect on Guidant, triggering an out clause in the contract. J&J; said that the two companies had discussed restructuring the transaction but added that no agreement had been reached.
In a statement, J&J; said it would “vigorously oppose the lawsuit and take all necessary action to enforce its rights under the merger agreement.” The company declined to comment further.
Guidant also declined to comment, but the lawsuit said the recalls and related problems didn’t constitute a material adverse event and that J&J; breached the contract by not closing the deal. J&J; can escape paying a $700-million breakup fee if it can show that the recalls have hurt Guidant -- and analysts said J&J; has a big advantage given all of Guidant’s misfortunes since the deal was announced.
Guidant shares fell $1.40 to $57.52, while J&J; shares rose 55 cents to $61.43.
Guidant reported that its third-quarter profit dropped 57% to $65.4 million, or 20 cents a share, from $153.6 million, or 48 cents, a year earlier. The latest figure includes costs of $28 million, or 6 cents a share, related to regulatory actions on its devices. Revenue fell 14% to $795 million.
