Surprise US$25b bid for medical-device maker

CHICAGO - Boston Scientific made a surprise offer yesterday to buy medical-device maker Guidant for about US$25 billion ($34.8 billion), trumping an existing offer from Johnson & Johnson.

The deal would give Boston Scientific access to the US$10 billion market for implantable devices that help regulate heart beats - such as pacemakers and defibrillators - that were the main drivers in J&J's original US$25.4 billion offer for Guidant.

Safety concerns and litigation over Guidant's heart products forced the company to agree to a reduced price of US$21.5 billion, a 15 per cent discount over the original offer.

That lower price spurred Boston Scientific to make a rival bid, company officials said, and could force J&J to walk away from a takeover announced 12 months ago.

"This is a phenomenal move. They're literally telling J&J to put up or shut up," said Mark Landy, an analyst at Susquehanna Financial Group, who called the offer a "welcome holiday gift for Guidant."

Boston Scientific, based in Natick, Massachusetts, is offering US$72 a share, a premium of about 14 per cent over the US$63.43 offered under the revised deal between Guidant and J&J. It is also a 16 per cent premium over Guidant's closing stock price on Friday.

Guidant, whose shares jumped nearly 10 per cent in closing trade on the new offer, said it would consider the new bid. J&J officials could not be immediately reached for comment.

Boston Scientific already competes with larger rival J&J in the market for lucrative devices to open clogged heart arteries known as stents. But the products face a period of slowing growth, which has weighed on the stock price.

A deal with Indianapolis-based Guidant would give Boston Scientific access to the high-growth market for implantable heart defibrillators, pitting it against Medtronic and St Jude Medical, Guidant's two chief rivals in cardiac rhythm management.

"Through this combination, Boston Scientific becomes more diversified, participating in two of the largest medical device markets - interventional cardiology and cardiac rhythm management," said Jim Tobin, president and chief executive.

"To sum up, our proposal is better for Guidant, its shareholders and its employees than Johnson & Johnson's revised offer, and can be closed quickly," Tobin said.

To speed regulatory approval of the deal, Boston Scientific would divest Guidant's vascular intervention and endovascular businesses.

Boston Scientific chief operating officer Paul LaViolette said the company was undaunted by the lost market share and legal fallout related to Guidant's recalled heart devices - two issues that J&J successfully used to extract a lower price for Guidant.

"We are very confident in our proposal. We think the issues are very manageable," LaViolette said.

Boston Scientific said it saw the deal closing in the first quarter of 2006, assuming it reached an agreement by year's end. The company said it had factored into the transaction a US$625 million break-up fee.

Thomas Gunderson, analyst at Piper Jaffray, called the offer "very clever" and noted that "a US$72 bid is hard to ignore".

But Les Funtleyder, analyst at Miller Tabak, said in a research note that while Guidant and Boston Scientific fitted together fairly well strategically, a union between the two would take a while to integrate and potentially weaken the franchise of both companies.

- REUTERS