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J&J Wins Discount on Guidant Purchase

November 16, 2005|From Associated Press

INDIANAPOLIS — Ending a weeklong standoff, Johnson & Johnson agreed Tuesday to acquire struggling medical device manufacturer Guidant Corp. for $21.5 billion, about 15% less than its initial offer last year.

The deal would help J&J beef up its medical device division, but the New Brunswick, N.J.-based company could inherit a hornet's nest of legal problems related to recalls of Guidant pacemakers and implantable defibrillators that sapped patient and physician confidence in the company's devices.

The deal could bring patients better heart devices, possibly at a lower cost, experts said.

If the revised acquisition is approved by Guidant shareholders early next year, J&J would buy the Indianapolis-based company for $63.08 a share, about $4 billion less than its earlier offer of $25.4 billion, or $76 a share.

"They got one hell of a discount," said Jerry Reisman of New York law firm Reisman, Peirez & Reisman. "They believe that's certainly enough money to cover any litigation costs and any potential awards that may come in the future."

James M. Cornelius, Guidant's chairman and interim chief executive, said the new price "appropriately reflects the business challenges we have experienced in this period."

He said the company was confident it could rebuild market share but acknowledged, "Rebuilding will involve time, resolve and resources."

Sidney Smith, a former American Heart Assn. president and a professor at the University of North Carolina at Chapel Hill, said the deal could help patients get better heart devices.

"I'm sure both companies want to see that their reputation for being careful with patients is well established," Smith said.

When combined, the companies would continue to use the Guidant name for cardiovascular products manufactured by the two.

Guidant shares jumped $4.75, or 8.2%, to $62.50. J&J shares rose $2.32, or 3.8%, to $62.83.

The deal, which was originally expected to close in the third quarter, was delayed after Guidant recalled thousands of pacemakers and defibrillators. Since June, Guidant has recalled or issued warnings about 88,000 heart defibrillators and almost 200,000 pacemakers because of reported malfunctions.

Dozens of suits have been filed by patients and investors since the announcements.

Guidant also faces a reported criminal probe by the Food and Drug Administration. Last month the district attorneys in Boston and Minneapolis issued separate subpoenas seeking documents about Guidant's devices. Guidant also has been sued for alleged fraud by New York Atty. Gen. Eliot Spitzer.

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