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J&J; Weighing Guidant Acquisition

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From Bloomberg News

Johnson & Johnson, the world’s biggest maker of medical devices, may buy defibrillator maker Guidant Corp. for $24 billion, people familiar with the situation said Tuesday.

Shares of Guidant jumped 5.2% and Johnson & Johnson fell 2.3% after the New York Times reported the companies were in talks, citing unnamed company executives. The two haven’t agreed whether a purchase of Guidant, the No. 2 maker of implantable defibrillators, would be with cash, stock or a combination, said the people, who declined to be named.

Johnson & Johnson Chief Executive William Weldon needs new products to bolster revenue growth because the company has lost its top spot in the drug-coated stent market and sales of its Procrit anemia drug are falling.

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The market for pacemakers and implantable defibrillators, which correct irregular heartbeats using electric shocks, may grow more than 24% this year to $4.7 billion, analysts estimate.

“It would be a great relief to see them do a merger or acquisition like this. It puts them in some really growing markets,” said Susan Cross, an analyst at Wilmington, Del.-based Wilmington Trust. “Procrit is one of the areas people are really whining about.”

Guidant spokesman Steve Tragash declined to comment. Jeff Leebaw, a spokesman for New Brunswick, N.J.-based Johnson & Johnson, said the company didn’t comment on speculation. The companies may announce a deal within a week if they can agree on terms, the people said.

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Guidant, based in Indianapolis, dominates the market for bare-metal stents, tubes used to prop open arteries that have been cleared during a procedure known as an angioplasty. Doctors are switching to more effective drug-coated stents such as Boston Scientific Corp.’s Taxus and Johnson & Johnson’s Cypher, which Guidant already helps market.

Shares of Guidant rose $3.60 to $72.35. Johnson & Johnson shares fell $1.42 to $60.41. Both trade on the New York Stock Exchange.

The proposed purchase price would be a 9.6% premium to Guidant’s market value Monday and is almost seven times Guidant’s 2003 sales of $3.7 billion. The acquisition would be the third-biggest in the U.S. this year and the largest ever for Johnson & Johnson, which has made more than 40 purchases over the last decade to build a product lineup that includes artificial hips and drugs.

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A combined Johnson & Johnson and Guidant could save about $509 million a year, based on overlapping businesses and other cost cutting, Credit Suisse First Boston analyst Adam Galeon said.

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