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Guidant sues to force acquisition

Associated Press
Published November 8, 2005

NEW YORK - Medical device maker Guidant Corp. sued Johnson & Johnson on Monday in an attempt to force it to complete a $25.4-billion acquisition of Guidant, which has been roiled by a series of recalls.

Analysts and lawyers said the suit signals the two sides have failed to renegotiate the acquisition which had been due to close last week and that the deal will likely dissolve.

Shares of Indianapolis-based Guidant tumbled nearly 5 percent in early trading Monday, before recovering slightly. J&J shares rose.

Meanwhile, Guidant's problems mounted as it reported sharply lower third-quarter earnings on Monday and disclosed it was under investigation by the Securities and Exchange Commission. Moody's Investors Service changed the direction of Guidant's rating review to possible downgrade from direction uncertain because the transaction didn't occur as planned.

The lawsuit, filed in U.S. District Court in Manhattan, comes after Friday's deadline passed for completing the deal as specified under the deal the two companies reached Dec. 15, 2004.

It followed days of speculation that J&J would walk away after warning last Wednesday that it was no longer obligated to complete the deal because the recalls have had a material adverse effect on Guidant, triggering an out clause in the contract. J&J said the two companies had discussed restructuring the transaction although no agreement had been reached.

The original deal valued Guidant at $76 per share in a combination of stock and cash. Analysts said the speculation on Wall Street was that New Brunswick, N.J.-based J&J was willing to pay in the low $60 per share range for Guidant while Guidant was holding out for a price in the high $60 per share range.

In a statement, J&J said it "will vigorously oppose the lawsuit and take all necessary action to enforce its rights under the merger agreement." The company declined further comment.

Starting in June, Guidant has recalled or issued warnings about 88,000 heart defibrillators - including its top seller, the Contak Renewal 3 - and almost 200,000 pacemakers because of reported malfunctions.

[Last modified November 8, 2005, 02:15:36]

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