Johnson & Johnson Weighs Options on Guidant Deal Over Defibrillator Issues

Strategic Insights -

Johnson & Johnson, which recently agreed to buy Guidant for $25.4 billion, is assessing whether issues with Guidant's heart devices and its response to them constitute a "materially adverse change" to Guidant's business. If the problems are deemed damaging, Johnson & Johnson could renegotiate the deal or potentially walk away from the acquisition. The issues stem from Guidant's announcement of a 50,000-defibrillator recall, including 29,000 devices with flaws that could cause them to short-circuit, which has been linked to two recent deaths. Lawyers for Johnson & Johnson are also investigating whether Guidant breached representations and warranties made during the deal-making process.

Key Takeaways:

  • Johnson & Johnson is evaluating whether problems with Guidant's heart devices and its response to them represent a "materially adverse change" to Guidant's business, which could impact the deal's terms.
  • The potential issues could lead to renegotiation or Johnson & Johnson potentially walking away from the $25.4 billion acquisition.
  • Guidant recently announced a recall of 50,000 defibrillators, including 29,000 devices with flaws that could cause them to short-circuit and have been linked to two recent deaths.
  • Lawyers for Johnson & Johnson are investigating whether Guidant breached representations and warranties made during the deal-making process.
  • Johnson & Johnson acquired Guidant in December at a price of $76 in cash and stock per share, with Guidant deriving nearly half of its $3.8 billion in sales from implantable defibrillators.
  • Guidant's stock price plummeted by $1.20 on Friday, and an additional $1.89 in after-hours trading, closing at $70.57.

Statistics:

  • $25.4 billion: the value of the Johnson & Johnson-Guident acquisition deal.
  • $3.8 billion: Guidant's sales in the previous year, with nearly half coming from implantable defibrillators.
  • $76: the price Johnson & Johnson paid per share of Guidant in the acquisition.
  • $72.46: the closing price of Guidant stock on Friday.
  • $70.57: the closing price of Guidant stock in after-hours trading.
  • 50,000: the number of defibrillators recalled by Guidant due to potential flaws.
  • 29,000: the number of defibrillators recalled due to flaws that could cause them to short-circuit.
  • 2: the number of recent deaths associated with Guidant devices.

Sources:

  • "Johnson & Johnson to Buy Guidant for $25.4 Billion" - CNBC (December 2005)
  • "Guidant Recalls 50,000 Defibrillators Over Fears of Failing" - The New York Times (Friday)
  • A spokesman for Johnson & Johnson, based in New Brunswick, N.J.
  • A spokesman for Guidant, based in Minneapolis.