Clearly deciding the time has come for decisive action, Boston Scientific has raised its offer for medical device maker Guidant by a whopping $7 a share to $80 as it tries to entice the firm away from rival suitor Johnson & Johnson.
The new bid is valued at $27 billion, well ahead of J&J’s current offer of $71 a share, or $24.2 billion, and has finally brought Boston Scientific the backing of Guidant’s management.
"Boston Scientific's revised offer to acquire Guidant is superior to the terms of the company's current merger agreement with J&J," Guidant said in a statement.
Just ahead of a 5pm EST deadline set by Boston Scientific yesterday, Guidant issued a statement saying that it would recommend the revised offer, giving J&J just five days to come up with a counter-bid or walk away from the table.
But Boston Scientific’s shares fell more than 5% on the news, as investors started to fret that the company may end up paying too much for Guidant, which is still suffering the effects of a major product recall in mid-2005 that sliced 15% off its fourth-quarter revenues.
J&J responded to the new bid by saying that it was based on “aggressive business projections” and that it would be “highly dilutive” at that price, suggesting it may not seek to come back with a counter-bid. Analysts said J&J would probably have to hike its offer to the $77-$78 region – above its original offer of $76 a share in December 2004 that was trimmed back in light of Guidant’s recall problems.
Abbott Laboratories, which had already agreed to buy Guidant’s cardiovascular stent business, including a new drug-eluting stent called Xience (everolimus) in clinical development, for $4 billion if Boston Scientific clinched the deal, was instrumental in helping Boston Scientific make the latest offer. It has agreed to buy $1.4 billion in Guidant stock, raised the purchase price for the stent unit by $300 million, and will loan Boston Scientific $200 million.
J&J stands to receive a break-up fee if it fails consummate an agreement with Guidant, but that will be cold comfort, as J&J desperately wants to complete the deal to boost its cardiovascular stent business and grab a piece of the fast-growing, $10 billion market for cardiac rhythm management (CRM) systems, such as pacemakers and implantable cardiac defibrillators (ICDs).
Meantime, as the bidding war for Guidant escalates, speculation has resumed that the loser may consider making an offer for St Jude Medical, which ranks third in the ICD market.