Boston Scientific Corp. raised the stakes in the bidding war for heart-device maker Guidant Corp. Thursday night, boosting its offer to about $26 billion and giving Guidants board of directors less than 24 hours to take the deal.
The Natick company offered $73 a share, or $5 a share more than rival suitor Johnson & Johnson, and added provisions intended to quell concerns Guidants board had about the firms initial proposal.
"Our amended offer addresses all of the outstanding issues raised by Guidants board," Boston Scientific chairman Peter Nicholas said in a statement.
As part of its new offer, Boston Scientific guaranteed it would sell off any Guidant divisions necessary to satisfy federal antitrust regulators and included an unusual provision that would pay interest to Guidants shareholders if it fails to close the acquisition by the end of March.
"I haven't ever heard of that before," said Jan Wald, a medical-device analyst with A.G. Edwards & Sons. "Thats not a bad return."
The offer marks the latest sharp turn in what has become a tight bidding war between a Natick device maker trying to swallow a company with a market value higher than its own, and New Jersey healthcare giant Johnson & Johnson, one of the biggest corporations in America.
If it succeeds in buying Guidant, Boston Scientific would become the worlds largest heart-device maker and the most valuable public company in Massachusetts.
The two companies are competing fiercely over the potential sales growth they see for Guidant's line of implantable heart defibrillators, which regulate the hearts rhythm. The deal is seen as crucial for Boston Scientific, whose heavy reliance on one blockbuster product the drug-coated coronary stent has soured investors on its prospects for future growth.
Boston Scientific first made waves a month ago by swooping in with an offer that topped the $21.5 billion deal that Guidant and Johnson & Johnsons boards had already signed.
The bidding war began in earnest this week when Johnson & Johnson, which originally offered $63 a share for Guidant, raised its offer to about $68 a share Wednesday, or just over $23 billion total. The Guidant board met and approved the amended deal, which also stiffened the penalty for Guidant to break off the deal and take Boston Scientifics offer, from $625 million to $675 million, according to a document filed yesterday.
Though priced lower, Johnson & Johnsons deal offered important assurances to Guidant shareholders. It includes a slightly higher proportion of cash over stock, and its merger agreement has already been cleared by federal regulators, which means it could close more quickly.
According to Boston Scientifics statement Thursday night, the new bid answers concerns raised by Guidants board. The company will sell all "overlapping assets" of the two companies if required by federal antitrust rules. Boston Scientific had previously said it would sell Guidants vascular-intervention and endovascular business to Abbott Labs of
Illinois for $4 billion, and share rights to Guidants future drug-coated stent when it comes on the market.
A person close to the transaction says Boston Scientific is "highly confident" that the deal will get through antitrust regulators with those terms, but the company is willing to sell its stent business outright if required.
To reassure shareholders concerned that their returns could worsen if the acquisition deal drags out, the new offer would also pay interest to Guidant shareholders at a 6 percent annual rate, starting April 1, if the deal doesnt close by the last day of March.
Boston Scientifics new offer, at $36.50 in cash and $36.50 in company stock per share, now goes before the Guidant board, which is currently recommending Johnson & Johnsons lower offer to shareholders.
Guidant said in a statement that it would "evaluate all aspects of the offer from Boston Scientific."
Representatives for Johnson & Johnson could not be reached for comment Thursday night.
The offer, issued at 7:21 p.m. Thursday night, expires at 4 p.m. Friday. If Guidants board says yes, then Johnson & Johnson will have five business days to make a counteroffer or walk away, and Guidant has until Jan. 24 to sign a final agreement with Boston Scientific.
Merger specialists predicted that the Guidant board could run into trouble with shareholders if it rejects an offer more than 6 percent higher than the competition.
"This is going to be an invitation to some serious lawsuits," said Boston University finance professor Allen Michel. "Six percent is a lot of money."
A number of Guidant shareholders Thursday said they would vote against the current pact with Johnson & Johnson. Ivan Krsticevic, a portfolio manager for the hedge fund Elliott Associates who holds 3 million Guidant shares less than 1 percent of outstanding shares wrote in a letter to Guidants board that he would vote against the deal, which he called an "inexplicable and value-destroying decision."
Johnson & Johnson already has received federal clearance on its acquisition plan, in which it would license a key technology for interventional catheters to Abbott Labs. Boston Scientifics deal calls for it to sell Guidants entire endovascular business to Abbott for $4 billion, and also share rights to Guidants drug-eluting stent when it reaches the market.
Although Boston Scientifics offer has not been approved by the Federal Trade Commission, Nancy Havens, a portfolio manager at the New York hedge fund Havens Advisors, said that lawyers hired by her firm concluded that the antitrust issues would be unlikely to slow the deal.
Stephen Heuser can be reached at email@example.com.