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Pharmaceutical industry

Boston Scientific Boosts Bid for Guidant in High-Stakes Bidding War

Strategic Insights

— 2 min read

Boston Scientific Corporation has increased its bid for Guidant Corporation, attempting to outmaneuver Johnson & Johnson in a highly competitive bidding war for the heart-device maker. The Natick company's $72-per-share offer, worth approximately $25 billion, includes a definitive agreement to sell Guidant's vascular business to Abbott Laboratories for $4.3 billion. This move is expected to alleviate concerns from the Federal Trade Commission and ease the financial burden of the transaction. By including a side deal, Boston Scientific aims to ensure that Guidant shareholders receive $72 per share in value, regardless of fluctuations in the company's stock price.

Key Takeaways:

  • Boston Scientific has strengthened its offer to acquire Guidant for $72 per share, worth approximately $25 billion, with a side deal to sell Guidant's vascular business to Abbott Laboratories for $4.3 billion.
  • The Boston Scientific bid includes a financial mechanism that guarantees Guidant shareholders $72 per share, even if the company's stock price fluctuates up to 10 percent.
  • Johnson & Johnson has responded with a defiant statement, expressing confidence that its offer of $64.11 per share will be accepted by Guidant shareholders.
  • Boston Scientific's president and CEO, James Tobin, has stated that his company's due-diligence process found Guidant's core operations, sales force, and engineering capabilities largely intact despite past recalls.
  • The merged company would be the largest heart-device maker in the world and the most valuable public company in Massachusetts, with a combined business in drug-eluting stents and pacemakers/implantable defibrillators.
  • Boston Scientific would borrow between $8.5 billion and $9 billion to complete the deal, but expects the combined companies to generate substantial amounts of uncommitted cash, allowing the debt to be repaid within five years.

Statistics:

  • Boston Scientific's offer value: approximately $25 billion
  • Abbott Laboratories' purchase price for Guidant's vascular business: $4.3 billion
  • Boston Scientific's expected borrowing range: $8.5 billion - $9 billion
  • Medicare reimbursement for ICD implantation: $27,000 - $40,000 (not including doctor's costs)
  • Average cost per ICD: $25,000 - $35,000
  • Total cost of ICDs needed for the procedure: $25,000 x 109,000 (Guidant defibrillator recall) = $2,725 million

Sources:

  • The Boston Globe, January 9, 2006, page B1
  • Boston Scientific Corporation's letter to Guidant's chairman
  • Abbott Laboratories' financial statement
  • Medicare reimbursement rates
  • Johnson & Johnson's statement to the press
  • Boston Scientific Corporation's annual report
  • Guidant Corporation's financial statement
  • Reuters news service article by Steve Brozak

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