Boston Scientific rival raises its Guidant offer

Johnson & Johnson last night sweetened its takeover offer for Guidant Corp. to $23.2 billion, and Guidant's board approved the bid even though it is about $2 billion less than a competing proposal from Boston Scientific Corp. of Natick.

The move sets the stage for a bruising takeover battle, with analysts and investors anticipating a round of counteroffers before the fate of the maker of defibrillators and other cardiac devices is decided.

In a statement, Boston Scientific said that its offer ''is superior" to Johnson & Johnson's. ''Our discussions with Guidant are ongoing," the company said. ''We intend to vigorously pursue this transaction to its completion."

Jan Wald, an analyst with A.G. Edwards & Sons, said, ''Boston Scientific wants it, and they're going to go after it. If it takes raising the price, they'll raise the price." He also said the battle could trigger a proxy fight, in which Boston Scientific and Johnson & Johnson would appeal directly to Guidant's shareholders. Such battles are extremely rare in the life science field, Wald said.

''This just doesn't happen in medical technology," said Wald, ''but it demonstrates how important Guidant is for each company."

The fight reflects what could be an increase in mergers and acquisitions activity in the life sciences industry. Other Boston area companies, such as Serono SA, for instance, have been the subject of takeover speculation in recent months.

Nick Galakatos, managing director of Clarus Ventures, a Cambridge venture capital firm specializing in biotech, said that mergers reflect big life sciences companies' need to keep pushing their quarterly earnings higher and higher. That's difficult for many companies because they don't have many new products.

''With innovation lower, it's a fairly natural balance to see economies of scale kick in," Galakatos said.

Though rare, companies sometimes select lower offers in takeover bidding. Lower winning bids are found superior for other reasons, such as the likelihood of the transaction winning regulatory approval or superior long-term prospects of the merged company in the case of a stock swap.

Unocal Corp. last year turned down an $18.5 billion takeover offer from Cnooc Ltd., a Chinese state oil company, and instead accepted a slightly lower bid from Chevron Corp. The Cnooc offer had raised an uproar in Washington and some US representatives warned they might attempt to block a takeover by the Chinese company on national security grounds.

Johnson & Johnson's offer is the third it has made to buy Guidant, and in a joint statement, Guidant and Johnson & Johnson presented the new bid as a done deal. Johnson & Johnson would give $37.25 in cash and just under half a share of Johnson & Johnson stock for each Guidant share, equal to a total price of $68.06 a share.

In December 2004, Johnson & Johnson offered $76 a share to buy Guidant, of Indianapolis. But in November, after Guidant suffered a series of embarrassing recalls and warned its financial results would suffer, Johnson & Johnson lowered its bid to about $63 a share, or about $21.5 billion.

Boston Scientific jumped into the mix in December with an unsolicited bid of $25 billion. Sunday, it finalized the terms of its deal and said it would sell Guidant's vascular business to a third party to allay any antitrust concerns on the part of the Federal Trade Commission.

In a statement, Johnson & Johnson chairman William C. Weldon emphasized his firms' yearlong courtship with Guidant, saying that would help the combined firms create ''an extraordinary cardiovascular device business."

He added, ''We strongly believe that our union with Guidant is the only one that can deliver on that promise, and create lasting value for shareholders of both companies."

The new Johnson & Johnson deal offers slightly more cash than Boston Scientific's offer. But it is worth nearly 6 percent less than Boston Scientific's standing offer.

To persuade shareholders of the superiority of its bid, Johnson & Johnson must emphasize the growth prospects of its shares compared to Boston Scientific. Last year, Boston Scientific's shares fell by 28 percent, ending the year at $24.49.

Johnson & Johnson's stock traded sideways for most of the year within a narrow band between $60 and $70 a share.

Before last night's disclosure, Boston Scientific's shares sank steadily throughout the trading session as investors weighed the prospect of having to fight back a competing bid from Johnson & Johnson.

Before the revised Johnson & Johnson bid was disclosed, an institutional shareholder came out in favor of the Boston Scientific bid.

Elliott Associates LP, a New York hedge fund that holds 3 million Guidant shares, wrote to the firm's board urging it consider the Boston Scientific offer.

''We strongly urge Guidant's board to recognize the superiority of Boston Scientific's offer versus J&J's and, just as importantly, to ensure a level playing field should J&J increase its offer," wrote Ivan Krsticevic, senior portfolio manager, in a letter send earlier this week. ''Anything less than $71 per share from J&J should not be accepted, in our view."

Jeffrey Krasner can be reached at krasner@globe.com. Globe staff writer Stephen Heuser contributed from San Francisco, and material from Globe wire services was used in report.