Friday, February 03, 2006

Boston Scientific Overpaid for Guidant

Guidant & Abbott Labs Come Away Victorious

Wall Street loves a good bidding war. Along with the drama comes the duplicate advisory fees, duplicate legal fees, duplicate financing fees, and in the end the higher share price upon which Jeff Matthews said it best, “so many other sharks in the tank can feed.”

WSJ reported last week that Boston Scientific (NYSE:BSX) examined a Guidant deal three years ago and passed, but became intrigued this time around at taking advantage of a lower Johnson & Johnson (NYSE:JNJ) bid for the company.

But did Boston Scientific overpay for Guidant?

Ask yourself who really knows more about Guidant. Johnson & Johnson – who spent $10s of millions over the past several months combing through the inner workings of Guidant – decided the price was too high and walked away from the deal… Do we trust their judgment?

J&J agreed to buy Guidant in December 2004 after spending upwards of $1 million a day evaluating the business units product-by-product. Then six months later, Guidant reported a flaw in one of its defibrillators, and soon pulled five of the devices from the very market for which J&J wanted Guidant in the first place.

Thus, J&J eventually lowered its deal price for Guidant. This “opened the door” for Boston Scientific to enter the bidding war & eventually come away the victor.

In summary, Boston Scientific passed on buying Guidant 3 years ago. Since then, Guidant’s price has tripled, their defibrillators have failed, and J&J has walked away. Boston Scientific better know something that J&J does not!

Only time will tell whether that's true for Boston Scientific's acquisition of Guidant, but it looks as though Abbott Labs (NYSE:ABT) is already coming out a winner.

Assuming no more surprises in the Boston Scientific/Guidant soap opera, Abbott will end up acquiring Guidant's vascular business for $4.1 billion. It will also buy $1.4 billion worth of BSX's stock. That immediately enhances Abbott's credibility as a future player in the stent market.


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