Boston beats J&J in battle for Guidant, but Abbot is the real winner
Boston Scientific's $27 billion offer won the bidding war for medical-device maker Guidant, after Johnson & Johnson confirmed it would not raise its bid above its initial offer of $25.4 billion. J&J's initial bid was made 14 months ago, but after Guidant made a series of product recalls, J&J revised their offer down to $21.5bn on the basis that the recalls had significantly lowered the value of the company.
Although Guidant agreed to J&J's lower offer, Boston, a smaller rival of J&J took the opportunity to launch a counter-bid of $25bn, which was twice revised upwards to $27bn, to out-bid J&J.
J&J have been accused of being too aggressive in bidding, and by marking Guidant as damaged goods and lowering their offer, J&J ruled themselves out of launching a credible, high bid. Guidant's coronary "stent" business was the company 's crown jewel. Stents help keep closing arteries open, and are a $5bn-a-year market. Boston wants to decrease its dependence on , a drug-coated mesh used to hold open diseased arteries.
As a result of Boston's relatively small size the company is now heavily "geared", or in other words has borrowed a lot of cash to fund the deal; the interest payments on which, will undoubtedly hit Boston's earnings.
Abbot Laboratories have agreed to buy parts of Guidant from Boston Scientific worth up to $6bn, to in exchange for rights and divestitures that will speed their entry into the stents market. Abbot is also loaning Boston over $900m to help fund the deal. Without Abbot's help Boston would not have been able to afford its bid - which is effectively $21bn for the majority of Guidant.
Boston and J&J have handed the top-spot in this new market to the clear winner Abbot who seems to have outmanoeuvred all of them. The Boston-Guidant deal has successfully transformed Abbot into a powerful competitor, who have received the same as Boston, but for $21bn less.
