Thursday, December 15, 2005

More J&J - Guidant

Good in-depth article via Wharton on use of MAC clauses. It will be amusing to watch this one play out now that Boston Scientific has lobbed a bid in near J&J's original price. Does J&J really believe Guidant's issues cripple it as an asset, or did J&J seize an opportunity to try and get a better price?

The article also alludes to the complicated decision-making process a seller has to go through in evaluating multiple offers. Price is important, but not everything. In a stock deal, the seller has to decide which buyer will do better integrating and realizing the synergies of the deal, thus creating more shareholder value in the new company. Guidant will also obviously be concerned about certainty of getting to closing at the agreed-upon price, given their experience with J&J (my guess is that a Guidant - BSX deal will have a VERY specific MAC clause). In other situations, sellers have to be concerned about closing happening at all. Foreign buyers, companies with activist shareholders, and large buyers who by the merger create industry concentration all may find themselves needing to offer a premium price to win the deal.

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