Thursday, January 12, 2006

J&J - Guidant

I last posted about J&J - Guidant in mid-December, when Boston Scientific came in with a higher offer of around $25B. Now J&J has come up to $23.2B, and Guidant has accepted J&J's revised offer.

Why would Guidant take an offer that's $1.8B less?

First of all, it might not really be $1.8B less. If Guidant goes with BSX, there will be a breakup fee payable to J&J somewhere in the neighborhood of $700M. I haven't seen anything that indicates the BSX offer is net of that fee. Secondly, a deal with J&J can get closed months faster, which increases the NPV of the J&J deal relative to BSX. Finally - and this will be very important to Guidant given their experience the first time around - the J&J deal offers greater certainty of closing. You can be sure there will be virtually no chance of J&J exercising the MAC this time around, and J&J's size relative to BSX (nearly 10X bigger) reduces the chance of the acquiror getting buffetted by market forces before closing occurs.

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