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Boston Scientific bids $25-billion for Guidant

Three weeks ago, Guidant accepted a $21.5-billion offer from Johnson & Johnson.

INDIANAPOLIS - Troubled Guidant Corp. drew a $25-billion offer from medical device rival Boston Scientific Corp., topping Johnson & Johnson's watered-down bid by more than $3-billion.

Guidant's once flagging stock rose $6.16, or nearly 10 percent, to close at $67.98 amid Wall Street's speculation of a bidding war.

But market analysts said that J&J, which did not return repeated phone calls for comment, may not want Guidant badly enough to spend billions more for the Indianapolis maker of pacemakers, defibrillators and other devices. Guidant has been plagued by a series of recalls and by related regulatory investigations.

It was just three weeks ago that Guidant accepted a revised $21.5-billion proposal from J&J and stopped suing the health care products company to close on a year-old acquisition offer of $25.4-billion.

Boston Scientific, whose products include the top-selling cardiac stent Taxus, offered Guidant a combination of cash and stock worth about $72 per Guidant share - a 16 percent premium over Friday's close. The prospect of entering the lucrative $10-billion international market for implantable pacemakers and defibrillators outweighed Guidant's recent legal and regulatory woes.

"The primary driver of our proposal is to increase Boston Scientific's diversification and grow our cardiac-rhythm management business," Boston Scientific's chief operating officer, Paul LaViolette, said in a telephone interview.

Guidant's original deal with J&J bogged down amid a series of recalls and warnings affecting nearly 200,000 pacemakers and about 88,000 defibrillators since June. Dozens of shareholder and product liability lawsuits have ensued, costing Guidant more than a quarter of its value. Its stock plummeted to a low of $55.26 last month.

"We understand there have been some recent issues, but we believe they are manageable," LaViolette said. "We are experienced with these issues."

Guidant's strengths outweigh its problems for Boston Scientific, which has seen its profits dwindle recently, Jefferies & Co. analyst Ryan Rauch said. "Guidant would shore up Boston Scientific's 2008 pipeline, if they're willing to take significant dilution to their shares in the short term," he said.

Rauch said he did not expect Guidant's shareholders to embrace J&J's offer over Boston Scientific's, given the premium and the frayed relations between Guidant and J&J. Rauch said J&J was not likely to sweeten its offer. "There's no love lost between Guidant and J&J," he said. "I believe J&J will not come back into the dance at a higher price."

The Boston Scientific offer consists of $36 in cash and $36 worth of its shares for each share of Guidant stock. J&J is offering $33.25 in cash and 0.493 share of Johnson & Johnson common stock for each Guidant share.

The deal, if it goes through, would dilute Boston Scientific's cash earnings per share through 2007, the company said. Moody's Investors Service said it was reviewing Boston Scientific for a possible downgrade, and Fitch Ratings placed Boston Scientific on a ratings watch while downgrading Guidant.

Observers said Guidant's problems have been overblown.

"I think once it all blows over, Guidant will continue to be the leader in the fields of pacemakers and defibrillators," said Dr. Jacob Shani, chairman of the Cardiac Institute at Maimonides Medical Center in New York.

Boston Scientific has faced its own problems, including a voluntary recall announced after the close of markets Friday of 18,000 vena cava filters, devices that are implanted in a vein that carries blood to the heart from the lower body. A $600-million legal settlement led to a third-quarter loss of $269-million, and it also has had to contend with a federal inspection that found manufacturing problems.

Guidant issued a terse statement saying its board would consider the Boston Scientific offer and that the company had no further comment.

[Last modified December 6, 2005, 02:15:34]