Guidant Board Backs J&J’s Offer

When is a bid for $71 a share better value to current stockholders than $73 a share? That is the question the Guidant board can now answer. A lower bid is better for its stockholders when Johnson & Johnson is making it. Guidant’s board has chosen the J&J bid at $71 a share over Boston Scientific’s $73 a share.

The Guidant board does have an argument or two in its favor. First, the J&J bid has already cleared anti-trust scrutiny, while the Boston Scientific bid (which came into play much later) hasn’t. This means the $71 a share offer is quite firm whereas the $73 a share Boston Scientific is offering may be a case of two in the bush. In addition, J&J has a deal with Guidant under which Guidant would have to pay $675 million to walk away from the J&J offer. The difference between the two offers is about $800 million, meaning the break up fee makes J&J’s bid quite competitive.

However, Ivan Krsticevic, a senior portfolio manager at Elliott Associates whose fund holds about 3 million shares of Guidant, released a statement saying, “We view Boston Scientific's $73 per share offer as superior to J&J's $71 offer. As long as Boston Scientific's offer remains available to Guidant or its shareholders we will not support the J&J transaction.” Part of his argument seems to be a guarantee by Boston to pay Guidant shareholders interest if the deal doesn’t close by March 31 and to “divest all overlapping assets” if that is needed.

Deephaven Capital Management, which also owns a big chunk of Guidant agrees. “There can be no doubt which is the better offer. Deephaven has no intention of voting its shares in favor of the current Johnson & Johnson offer,” it said in a letter obtained by Reuters. “Boston Scientific's revised offer holds better value, ensures certainty of closing and compensates Guidant's shareholders for any unforeseen delays.”

The next move is Boston Scientific’s which many expect will turn to Guidant’s shareholders. They have the final say in the matter, and the big question will be which firm will make the better long-term partner? There are no computer models for this, no quantitative analyses that will provide an answer. In short, it’s a tough one that requires a qualitative assessment. J&J is big and has been pursuing Guidant for a long time. Boston Scientific just might need it more and be prepared to do more with Guidant. Stay tuned.


© Copyright 2006 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent.
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