Tuesday, September 26, 2006

J&J Sues Over Guidant Loss

Readers will recall my many posts (start here and work forward) during the Johnson & Johnson - Guidant saga, which was a textbook example of the perils of being overly aggressive with enforcing material adverse change (MAC) clauses in deals. The deal progressed thusly:

- J&J bought Guidant, then backed out during the pre-closing period, citing the MAC clause over a product recall and SEC investigation at Guidant.
- Using this leverage, J&J extracted a reduced deal price from Guidant.
- This elicited interest from other firms, inciting a (post- deal signing) bidding war.
- Interloper Boston Scientific won out, acquiring Guidant for $2B+ more than J&J's original deal price, including a $705MM break-up fee to J&J.

Today, many months later, J&J has sued BSX for $5.5 billion. This figure presumably represents the lost deal value and the many expenses J&J incurred throughout the process. Curious to see what kind of evidence they have, as at first blush this looks like a loser. It's also - of course - a self-inflicted problem, as J&J could have avoided all of this unpleasantness by sticking with its original deal, despite Guidant's temporary setbacks. If J&J really wanted Guidant this badly, they should have kept the long view when the wheels were falling off last winter.

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