Guidant Accepts Johnson & Johnson's Reduced Offer

Johnson & Johnson had made a deal to buy rival medical device maker Guidant for about $25.4 billion. Then, Guidant got into some legal troubles over pace-makers that, in at least one case, shorted out and killed a patient. The brinkmanship that ensued went on for months but was resolved on Monday with the acceptance of J&J’s lowered offer – of around $19 billion. Some say that Guidant blinked, that J&J won, but this was more a case of grown-ups doing what was right and necessary.

Guidant’s Contak Renewal III and IV implantable heart devices are pretty big money spinners that regulate abnormal heart rhythms. Their recall hurt business, although they are back on the market now. However, J&J said that this and the regulatory investigations reduced Guidant’s value. Guidant’s problems would become J&J’s problems upon completion of the merger.

When talks on re-pricing the deal went nowhere, J&J threatened to walk away from the transaction. Guidant filed suit last week to force J&J to go through with the deal. The stage was set for a big legal battle that only the JDs on billable hours were going to win.

Then, a funny thing happened. Both sides came to their senses. J&J dropped the offer to a level that cancelled out (in its board’s opinion) the damage that had been done. For their part, Guidant's board members decided that 85% of the original offer was still a good deal. Both boards have approved the terms of the new arrangement. Although Guidant’s shareholders still have to vote on it and a few J&J assets will have to be sold to meet regulators’ demands in both the US and Europe, Wall Street expects everything to be finished in first quarter 2006.

So, did Guidant blink? The question is only apt if one views business as a zero-sum game. In this instance, both sides get what they want; only the price has changed. Guidant will still get to sell its products through J&J’s much broader distribution network, and J&J gets control of Guidant. Blinking doesn’t enter into it. The only guys who lose out are the lawyers, and they’re a cost of doing business. The best business deals are win-win situations, like this one.


© Copyright 2005 by The Kensington Review, J. Myhre, Editor. No part of this publication may be reproduced without written consent.
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