Medical device manufacturer Guidant has resorted to legal action in an attempt to force Johnson & Johnson to complete its $25.4 billion acquisition.
Litigation between the companies was widely anticipated last week, after J&J put out a statement saying that it wanted to either renegotiate the deal, or call it off altogether [[03/11/05a]]. The pharmaceuticals and consumer products group said that prospects for Guidant’s business had deteriorated to such an extent since the deal was first announced in December 2004 that the original terms were now void.
At the heart of J&J’s objections is the damaging effects suffered by Guidant after it was forced to recall or issue warnings about thousands of its heart pacemaker and defibrillator products, as well as regulatory probes into the firm [[20/07/05j]].
J&J originally offered $76 per share for Guidant, but the recalls have taken their toll on the latter’s share price: it closed yesterday at just $57.39. Now, J&J insists that recent events have materially impaired Guidant, so it no longer has to proceed with the acquisition.
Yesterday, the US Securities and Exchange Commission compounded Guidant’s woes by starting an investigation into its product disclosures and trading in its shares. And Guidant also reported that the product recalls contributed to a 57% drop in third-quarter profits to $65.4 million, while sales fell 14% to $795 million, with further declines forecast for the fourth quarter.
In a statement, Guidant said that it is asking the court to rule on the ‘specific performance of J&J’s obligation to complete its acquisition of Guidant in accordance with the merger agreement’.
Observers suggested that J&J wants to renegotiate the deal to a price of a little above $60 a share, while Guidant is seeking either a price in the high sixties, according to a Reuters report. With its lawsuit Guidant will be hoping to get J&J to agree a higher price or some form of break-up fee.