Takeover bid formalised in a heartbeat

CHICAGO - Boston Scientific has formalised its US$25 billion ($36 billion) cash and stock offer to acquire Guidant in a move to woo the medical-device maker away from its existing merger partner, Johnson & Johnson.

The purchase of Guidant would give Boston Scientific access to the US$10 billion market for pacemakers and defibrillators - devices that help regulate heartbeats and the main drivers in J&J's bid for Guidant.

The price of Boston Scientific's definitive offer is the same as the preliminary proposal it made last month, but it is 12 per cent higher than J&J's US$22.3 billion agreement to buy Guidant. Boston Scientific's bid also includes protection against a fluctuation in its stock price.

"Guidant's board will probably take it's sweet time with the offer and if the board endorses it, it'll be the death knell for J&J's offer," said WBB Securities analyst Steve Brozak.

Boston Scientific also forged a side deal to sell two Guidant units to Abbott Laboratories for US$4.3 billion to help ease regulatory review of the deal.

The sale of those units is conditional on Boston Scientific completing the purchase of Guidant. Under the agreement, Abbott would pay US$3.8 billion upfront, plus two instalments of US$250 million each upon regulatory approval of certain products.

Boston Scientific, which makes cardiovascular devices and products used in oncology and urology, set a January 19 deadline for Guidant to respond to the definitive offer. Guidant, based in Indianapolis, said it would evaluate all aspects of the offer.

The door for a rival suitor opened after J&J slashed the price of its takeover offer in November after safety concerns and litigation over Guidant's heart products.

Health-care conglomerate J&J, based in New Brunswick, New Jersey, said it still expected to close its purchase of Guidant. The deal has received regulatory approval and Guidant's shareholders are set to vote on the agreement on January 31.

Brozak expects Boston Scientific's bid to win.

"I don't see how it's practical for J&J to come back now and raise their offer because they've said repeatedly that their last (reduced) offer represents full value. If they paid more and something went wrong, how would (J&J's) management rationalise that?"

Boston Scientific, based in Natick, Massachusetts, said it saw Guidant's product and legal problems as manageable.

"The foremost thing here is that the long-term value of Guidant's business is very much intact. We have a realistic view of them and these sorts of problems are not uncommon in this field," Boston Scientific chief operating officer Paul LaViolette said.

"We've looked at the litigation carefully. It's safe to say we can manage it."

When Boston Scientific made its unsolicited offer for Guidant, it said it expected the deal to benefit its cash earnings in 2008. Its chief financial officer Larry Best now says it could take up to 18 months for the deal to boost earnings.

- REUTERS