The school-yard battle between Johnson & Johnson (J&J) and Boston Scientific has escalated once more. At the time of going to press, the board of Guidant – the intended acquisition target – had declared a hefty $80-per-share bid by Boston made on January 17th to be ‘superior’ to the $71 offer from J&J. This gives J&J until the 25th to revise its offer before the Guidant board can officially accept Boston’s bid and break the deal with the healthcare giant.
The new deal values Guidant at around $27.2 billion and, unlike previous offers, includes a larger cash component: $42 in cash and $38 in Boston Scientific shares. Guidant shareholders would hold around 36% of the combined company, which would be the world’s third largest medical device company behind J&J and Medtronic. The news sent Guidant shares to an all time high of $76.55. As a further sweetener, Boston has offered an interest payment of $0.0132 in cash per share for every day past the end of March until the deal is closed. The increase is likely to prove appealing to shareholders as well as board members; some shareholders, for example Elliott Associates, had already announced that they were likely to vote for Boston’s bid despite the Guidant board’s support for J&J.
Despite raising its offer, Boston has not increased its debt or damaged its credit profile owing to an amended deal it has struck with Abbott, which will purchase Guidant’s stent and catheter business should the merger with Boston go ahead. Under the terms of the new deal, Abbott will pay $4.1 billion for the business (up from $3.8 billion), increase its loans to Boston from $700 million to $900 million and buy $1.4 billion worth of shares. This deal with Abbott not only provides Boston with $6.4 billion in cash but also ensures the company avoids any anti-trust issues that would arise from over-lapping parts of the new business.
The new offer is $2.5 billion higher than Boston’s January 12th offer, and $3.3 billion more than J&J’s last proposal. J&J, which has been wooing Guidant since December 2004, is considering its options, but analysts speculate that it is unlikely to trump Boston’s bid. The only thing that might break the deal is if Boston’s share price falls too sharply in the next few weeks; although it has dropped, it is currently around $1.30 above the lower end of its price collar. Given that the deal does go through, J&J may have to settle for the $675 million termination fee that Guidant will owe it, and instead turn its attention to the other cardiac device maker: St Jude’s Medical. Shareholders will have their official say on January 31st. Under the rules of the playground, Boston has shown that its conkers are bigger than J&J’s