Boston Scientific goes all in

That odor drifting in from the west smells a lot like desperation to me.

Yesterday Boston Scientific Corp. of Natick raised its offer an astounding $7 a share to $80 for Guidant Corp., hoping to deliver a knockout punch in its pitched battle with the much-larger Johnson & Johnson for the once-damaged, now darling maker of defibrillators and pacemakers. The question, of course: How much is too much?

''In my opinion, companies that get into this kind of bidding contest often experience buyers' remorse. They pay too much," said John Dorfman, a value investor and president of Dorfman Investments in Newton. Dorfman bought Boston Scientific stock at its lows in October, but says he wouldn't be a buyer now.

Public companies live in a world that demands growth. The problem is most companies are not growing that fast. The disappointing revenue numbers out of both Intel and IBM yesterday are only the latest example (Story, E8). So companies are willing to pay up for whatever pockets of growth there are.

The alternative to buying is selling. Thus Tyco International Ltd., with its stock going nowhere, says it is going to split the company into parts. Viacom Inc. is doing the same. All in all, it is not the kind of dynamic that gives you great confidence in the market's broader prospects.

Growth is elusive. Not long ago Boston Scientific's Taxus drug-coated coronary stents were on fire. The company began selling them in 2004, but sales peaked in the last quarter of that year and have been declining slowly since. New competitors, including Guidant, are preparing to crowd into the market. Stents, as a growth story, are already yesterday's news.

With its core business slowing, Boston Scientific has pursued the Guidant deal hard. What both bidders see in Guidant is the projected $10-billion-a-year market for heart rhythm devices, the fastest-growing medical technology. Implantable defibrillators, which use electric shocks to restart a faltering heart, sell for up to $30,000 each. Pacemakers, which send electrical signals to regulate the heartbeat, go for as much as $12,000.

Guidant, however, is a distant number two behind Medtronic, which controls about half the market. Until recently, Guidant was considered damaged goods. Johnson & Johnson, or Johnny John as The Street calls it, first bid for the company a year ago, but that was before a high-profile defibrillator recall, investigations, and lawsuits. The result: a contentious renegotiation in which J&J forced Guidant's price down to about $63 from $76.

Now Boston Scientific looks like a company ready to pay anything, and do anything, to buy growth. In addition to raising its offer from $72 a share to $80, it has proposed a so-called ''hell or high water clause" in which it promises to assume any risk arising from antitrust or regulatory delays. It pledged to pay 1.2 cents a Guidant share -- the equivalent of 6 percent interest -- for each day's delay beyond March 31 in completing a merger. Yesterday it raised that to 1.31 cents a share. If I am Guidant chief executive James Cornelius, this is the moment I ask for that really big house in the south of France, too.

Is the prize worth the price? Under Boston Scientific's original $25 billion bid, the deal was not expected to add to earnings until 2009. At the current $27 billion bid, that date gets pushed back even more. The $720 million Boston Scientific would have to pay Guidant to fund the breakup fees to J&J only adds to the costs.

''Companies can do unwise things when they feel they must grow," said Dorfman, the value investor.

All through the bidding, Boston Scientific has been seen as the better fit with Guidant. Boston Scientific, a much smaller company, would benefit more by acquiring Guidant than the giant J&J would, or so the story goes. Every time it looked like Boston Scientific was in a position to win, its stock went up. Yesterday its stock fell 5.2 percent, or $1.30.

Boston Scientific's top executives are in the best position to judge whether a Guidant deal can work at these prices. But this much is certain: Their margin of error isn't what it was.

Steve Bailey is a Globe columnist. He can be reached at bailey@globe.com or at 617-929-2902.