Guidant Corp. formally abandoned longtime suitor Johnson & Johnson on Wednesday in favor of a $27.2-billion offer from rival Boston Scientific Corp., ending one of the most highly charged bidding wars in years.
The move capped nearly two months of negotiations and sweetened deals from J&J; and Boston Scientific, which saw the Indianapolis-based company as an opening to the $10.3-billion cardiac device market. J&J; declined to make a new offer by midnight Wednesday, leaving its rival victorious.
But Guidant also is grappling with months of product recalls and is less than a month away from the first of what could be several product liability trials. Securities analysts say it ultimately could be liable for as much as $2 billion in damages.
Shares of Boston Scientific and Guidant each fell nearly 2%, suggesting some investors believed Boston Scientific's $80-per-share offer was too high.
"Clearly, they paid a full price for it and there are uncertainties associated with Guidant," said David A. Katz, chief investment officer at Matrix Asset Advisors in New York, which owns about 1.5 million shares of Natick, Mass.-based Boston Scientific.
"But [the deal] does change the whole business and the franchise of Boston for the better, assuming they pull it off."
Since June, Guidant has recalled or issued safety advisories on about 88,000 defibrillators and more than 200,000 pacemakers. At least seven deaths have been linked to the faulty devices.
The regulatory investigations and dozens of lawsuits that followed made J&J; think twice about what it was willing to pay.
The New Brunswick, N.J.-based company initially offered $25.4 billion for Guidant in December 2004 but wavered after the recalls began. Guidant sued to close the deal, and the companies agreed to a revised J&J; offer of $21.5 billion in November.
In December, Boston Scientific presented an unsolicited, $25-billion bid for Guidant, triggering the bidding war.
Guidant last week declared Boston Scientific's latest offer superior to J&J;'s top bid of $71 a share. A five-day period for J&J; to respond expired at midnight without action by the company.
J&J; said Wednesday that topping its last $24.2-billion offer would not have been in the best interest of its shareholders.
The acquisition, expected to be completed at the end of the first quarter, must be approved by shareholders from both companies as well as regulators in the U.S. and Europe. No date has been set for the votes.
In addition to the cash-and-stock deal, Boston Scientific will pay the $705-million breakup fee Guidant owes J&J; for walking away.
Combined, Boston Scientific and Guidant could have 2006 revenue of nearly $9 billion.
Boston Scientific plans to sell Guidant's line of drug-coated stents to Abbott Laboratories Inc. for $6.4 billion in cash. The deal includes a $900-million loan and Abbott's agreement to acquire $1.4 billion of Boston Scientific common stock.
Guidant shares fell $1.59, or 2%, to $75.19. J&J; shares fell 86 cents, or 1.5%, to $58.50 and Boston Scientific shares fell 46 cents, to $23.54.