Guidant Corporation came storming into the arena yesterday to insist that the price being offered in its proposed link up with Johnson & Johnson is not over the top. The statement was issued in the wake of J&J’s comment that it is considering “the alternatives under [the] merger agreement” with Guidant – a manufacturer of cardiac devices – after the latter suffered a series of market recalls for its pacemakers and defibrillators because of safety issues [[19/10/05i]], [[21/06/05e]], [[20/07/05j]].
As a consequence, the devices company yesterday witnessed a sharp slump in its share price on the Nasdaq stock exchange – dropping from $72 dollars to $64, with more than ten times the normal number of shares changing hands as investors got cold feet, a figure that is significantly below J&J’s original $76 per-share cash offer.
In response to J&J, the company’s president and chief executive, Ronald Dollens, argued: “While neither company depends on this transaction for its continued future success, Guidant believes the strategic rationale for combining the two companies is as strong today as when we entered into the merger agreement.” J&J had originally hoped to tie up the $25.4 billion dollar deal in September but this was pushed back to October after the US Federal Trade Commission requested additional information [[22/02/05d]]. However, Guidant is still optimistic that it will be awarded US clearance for the deal this month, following a nod from the European Commission in August [[26/08/05b]].
Despite this optimism, it has been forced to acknowledge that its third quarter results will be impacted by the July/August recall of the Contak Renewal heart failure devices, but stressed that this will be partially offset by continued growth in the US coronary stent market. Guidant also expects to launch “several” heart rhythm management systems, including systems with wireless capability, during the fourth quarter, which it expects will be met with great success, adding: “We are confident that the value of the company remains strong.”
But because, theoretically, the companies have until the end of February to complete their union – these last minute wobbles on J&J’s part do not look overly promising for Guidant. The rumour mill is already suggesting that the US giant will seek a $4 billion dollar cut in the price tag, to reflect Guidant’s recent stock performance. And there is another sting in the tail as – under the terms of the deal – if either company decides it does not want to take a trip down the aisle, it will face a termination fee to the tune of $700 million for J&J and $750 million for Guidant.