Johnson & Johnson to Buy Guidant for $25.4B

Health care products giant Johnson & Johnson (JNJ) is buying Guidant Corp. (GDT), one of the world's top makers of cardiac devices, for about $25.4 billion in cash and stock.

Johnson & Johnson said Wednesday the planned acquisition of Indianapolis-based Guidant, which makes pacemakers and cardiac defibrillators, will complement J&J's line of products and services in cardiology and medical devices.

"The combination of these businesses will enable us to bring innovative new therapies to patients and their physicians in this very important and fast growing therapeutic area," said William C. Weldon, chairman and chief executive officer of Johnson & Johnson in a prepared statement.

Guidant shareholders still must approve the acquisition, the largest business deal in Johnson & Johnson's 118-year history, according to a Johnson & Johnson news release.

Under the terms of the deal announced late Wednesday, each Guidant share will be exchanged for $30.40 in cash and $45.60 in Johnson and Johnson stock. The $76 price is a 5.5 percent premium over Guidant's closing price of $72.05 on Wednesday.

Guidant, a spinoff by Eli Lilly and Co. (LLY) in 1994, capitalized on breakthroughs in heart stents and pacemaker-defibrillator technology to become one of the world's top medical device makers.

Ronald W. Dollens (search) will remain president and CEO of Guidant until the transaction has closed.

"We strongly believe that this exciting collaboration will benefit patients, customers, employees and shareholders," Dollens said in the statement.

Most of Guidant's 12,000 employees work in Minnesota and California, but it also has operations in Ireland and Puerto Rico. The company employs about 150 people at its headquarters in downtown Indianapolis.

Wall Street has been abuzz for months with talk of the negotiations.

John Putnam, a senior vice president and analyst at Stanford Financial Group (search) in Boca Raton, Fla., questioned earlier this week what J&J would gain from acquiring Guidant.

"What's questionable is what J&J is really buying here," he said. "They're obviously buying a big franchise, a cardiac rhythm management business, a growth area obviously, but even so, it's not going to be change they're overall growth rate that much."

J&J owns a stent-producing subsidiary, Cordis Corp., which would join Guidant as part of the new cardiovascular device unit within Johnson & Johnson, the statement said. The unit will be named Guidant while the Cordis name will be kept for select businesses within the franchise, Johnson & Johnson.

Guidant's lucrative cardiovascular and defibrillator businesses offers J&J sales and earnings growth at a time when the health care giant's pharmaceutical business is entering a transitional period, analysts said. J&J's painkiller Duragesic and its attention deficit disorder drug Concerta both could face generic competition next year after combined sales this year expected to reach $2.7 billion.

Guidant's implantable defibrillators racked up $445 million in sales during the third quarter, and Guidant told stock analysts recently that the worldwide market for the devices grew 25 percent through the first nine months of this year.

J&J earned $2.34 billion on revenue of $11.6 billion in the third quarter. Guidant earned $154 million on revenue of $925 million in the quarter.