BOSTON – Boston Scientific Corp. (BSX) on Sunday made a definitive $25 billion offer for rival medical device maker Guidant Corp. (GDT), standing by an earlier proposal that aims to scuttle a standing but smaller bid for Guidant from Johnson & Johnson (JNJ).
Boston Scientific's offer is largely in line with its initial Dec. 5 proposal. But the latest proposal from the No. 1 maker of drug-coated heart stents includes a new and related $4.3 billion deal in which the Natick, Mass.-based company will sell Guidant's vascular intervention and endovascular businesses to Abbott Laboratories Inc. if its Guidant acquisition is successful.
Johnson & Johnson responded by affirming its existing $21.5 billion bid. The New Brunswick, N.J.-based maker of everything from contact lenses to baby products also touted its size and rich history as selling points to win over Guidant shareholders.
Boston Scientific said the deal with Abbott to sell Guidant's business involving stents and other tiny devices to treat and diagnose patients with circulatory problems is aimed at ensuring antitrust approval for its proposed Guidant purchase. Boston Scientific has the top-selling drug-coated stent, and J&J sells the only other such device on the market.
Boston Scientific said it will share rights to Guidant's stent development program with Abbott Park, Ill.-based Abbott Labs, which is also developing its own stent.
Stents are metal-mesh devices that keep coronary arteries propped open after surgery to clear blockages. New models are coated with drugs to prevent scar tissue from forming new blockages.
Boston Scientific would receive $3.8 billion for Guidant's vascular business, plus an extra $500 million when U.S. and Japanese regulators approve the Guidant stent. Abbott also would give Boston Scientific a $700 million loan, payable over five years.
Abbott would gain the right to complete Guidant's project to bring a drug-coated stent to market, then market and license the technology.
Sunday's offer from Boston Scientific represents the latest salvo in a bidding war between the biggest stent rivals for Guidant's lucrative pacemaker and defibrillator business. Boston Scientific hopes to derail a process begun a year ago when J&J first bid for Guidant. J&J reduced its offer in November after Guidant suffered a spate of product recalls and other negative news.
Boston Scientific's latest proposal to create the world's largest cardiovascular products company came after its executives concluded four weeks of due diligence talks with Indianapolis-based Guidant to firm up the initial offer.
"We took a good hard look, and what we found realistically is the organization was still intact, and the engineering capability," Boston Scientific's president and CEO, Jim Tobin, said in an interview. "They clearly have some challenges, but the long-term value proposition is intact."
In a short statement, Guidant said its board will evaluate the Boston Scientific offer.
Boston Scientific's latest proposal mirrors its initial half-cash, half-stock offer to buy Guidant for about $72 per share That compares with the roughly $64-a-share price in J&J's offer, which totals $21.5 billion, down from J&J's initial $25.4 billion offer.
Boston Scientific said its offer represents a 12 percent premium over the current J&J offer of $33.25 in cash and 0.493 shares of J&J common stock for each Guidant share.
Boston Scientific's offer includes a protection to guard both companies' shareholders in case of wide fluctuations in Boston Scientific's stock before any shareholder approval. If shares dip below an average $23.62 apiece in 20 trading days leading up to a vote, shareholders would receive a greater exchange rate than the current offer for swapping their Guidant shares. The rate would be reduced if Boston Scientific's stock exceeds $28.86. On the New York Stock Exchange, Boston Scientific shares rose 37 cents to $26.24, Guidant shares gained 65 cents to $67.35, while J&J shares were up 28 cents to $62.60.
Guidant shareholders are due to vote on the J&J offer Jan. 31. Boston Scientific hopes it can reach a definitive agreement with Guidant's management before then, which could lead J&J to sweeten its offer.
Boston Scientific executives said they hope to close a deal in the first quarter.
Guidant's board has yet to recommend for or against Boston Scientific's initial offer, but has recommended shareholders vote for J&J's definitive proposal.
After Boston Scientific's initial offer, several industry analysts said they expected that proposal to prevail because its bid was $3.5 billion larger than J&J's.
However, analysts have suggested some Guidant shareholders could favor J&J's offer because it would align Guidant with a far larger company offering a more diverse range of products than Boston Scientific, which posted $5.6 billion in revenue in 2004 to J&J's $47.3 billion.
In a statement Sunday, J&J Chairman and CEO William Weldon said his company offers "the capacity to invest in Guidant's future."
"Guidant shareholders will find the certainty and imminence of our transaction compelling," he said.
Boston Scientific's offer would quadruple the company's debt load from about $2.5 billion as of Sept. 30 to about $10.5 billion. Also, accepting Boston Scientific's bid would require payment of a $625 million break-up penalty to J&J.
Boston Scientific and J&J are both eager to jump into the $10 billion global market for pacemakers and implantable defibrillators as others work to topple the two companies' leadership in stents.
That business has helped Boston Scientific more than double its earnings in 2004 and take a narrow lead in stents over J&J. But those profits, along with Boston Scientific's stock price, have since dwindled as a J&J stent has eroded some of Boston Scientific's leading position for its stent.
J&J cut its offer for Guidant after Guidant recalled or issued warnings about nearly 300,000 of its pacemakers and implantable defibrillators. On Dec. 23, Guidant adjusted its fourth-quarter revenue estimates below Wall Street expectations after the recalls hurt the company's market share more than expected.