Boston Scientific tries for a $25b coup

Boston Scientific Corp. made a surprise $25 billion offer to buy Guidant Corp. yesterday, a combined stock-and-cash deal that would transform the company into the world's largest maker of cardiovascular devices.

The Natick company wants to snatch Guidant from Johnson & Johnson, a Boston Scientific competitor that agreed last month to purchase the Indiana company for $21.6 billion. Guidant made headlines during the summer when it was forced to recall 88,000 defibrillators and almost 200,000 pacemakers because of safety concerns.

The move would mark a dramatic expansion for Boston Scientific, which has grown in the past few years into the largest life-sciences company in Massachusetts on the strength of its Taxus coronary stent. In the past year, the company's stock market value has suffered as it struggles to find another product with the growth potential of stents.

Boston Scientific's unsolicited takeover bid also highlights the growing economic power of Massachusetts life-sciences companies at a time when old-line firms like Gillette, Fleet, and Hancock have been bought by out-of-state corporations.

If Boston Scientific's bid is successful, the size would dwarf other acquisitions by Boston-area companies in recent years. For instance, FleetBoston Financial Corp. bought BankBoston Corp. in 1999 for $15.28 billion. Boston Scientific's offer is three times the price Gillette paid to acquire Duracell International Inc. in 1996.

In making the offer, Boston Scientific joins Johnson & Johnson in the race to become the first company to unite two multibillion-dollar heart-repair businesses: drug-coated stents, which offer a less-risky alternative to bypass surgery, and implantable defibrillators, which stave off sudden cardiac death by keeping the heartbeat regular.

In a letter sent to Guidant's chairman yesterday, Boston Scientific chairman Pete Nicholas and chief executive Jim Tobin called the deal a ''unique opportunity to create the premier cardiovascular device company in the world."

Boston Scientific, which has 2,200 employees in Massachusetts, said it would find about $400 million in cuts and cost savings if the deal went through, although it did not specify where they would fall.

''We are certainly looking at all areas, but we have not made any decisions about that," said Paul LaViolette, chief operating officer.

Guidant said in a statement that its board of directors would consider the offer, but had no further comment.

If Guidant's board and shareholders agree to the sale, it would derail a yearlong attempt by Johnson & Johnson to buy the company. First announced last December, the deal almost foundered after Guidant's high-profile product recall. Johnson & Johnson seized on that misstep to force the sale price down to below $22 billion from $25 billion.

Boston Scientific and Johnson & Johnson, which is based in New Jersey, share the estimated $6 billion global market in drug-eluting stents, which were introduced two years ago. The devices, tiny mesh tubes that hold open cleared arteries and emit a drug to prevent them from being clogged again, quickly became the fastest-selling medical device in history. Boston Scientific executives said they have long wanted to broaden their business by buying a cardiac-device maker and decided to act after Johnson & Johnson dropped its price for Guidant.

''We said, 'You know, at this price we have to look at this, we have to explore it,' " said Larry Best, the company's chief financial officer.

Boston Scientific has offered $72 a share for Guidant stock, 14 percent more than Johnson & Johnson's offer of about $63 a share. Payment would be 50 percent cash and 50 percent Boston Scientific stock.

Guidant stock jumped $6.16, or nearly 10 percent, to close at $67.98. Boston Scientific's stock dropped 98 cents yesterday to close at $26.35, down 3.6 percent.

Asked whether Johnson & Johnson would make a counteroffer, a spokesman said the company would not comment on any aspect of the deal.

Some analysts said yesterday that Johnson & Johnson is unlikely to increase its price because the company -- which also makes pharmaceuticals and consumer products such as Band-Aid bandages -- would have to beat an embarrassing retreat from its tough negotiating stance this fall.

But with Guidant's promising research program in drug-eluting stents, and its position as one of only three companies in the market for defibrillators and pacemakers, some others say Johnson & Johnson will be forced back to the bargaining table.

''Johnson & Johnson is certainly going to raise the offer -- it's almost inconceivable they won't respond here," said Jack Lasersohn, a New York medical-device venture capitalist. ''Competitively, it's a disaster to have Boston Scientific own Guidant in the angioplasty business. It just makes them incredibly powerful."

Unsolicited deals like Boston Scientific's have become unusual in corporate America in recent years. Typically, deals are negotiated by firms behind closed doors and made public only when ready for shareholders to approve.

Lasersohn said the offer, which he called ''quasi-hostile," marks the first high-level bidding war for a company in the medical-device industry, indicating the value placed on a handful of new blockbuster medical products.

''It's just never happened in the medical-device industry before," said Lasersohn, whose venture firm has sold several companies to Boston Scientific.

To stave off antitrust problems, Boston Scientific executives said they planned to sell Guidant's business in catheters and similar devices, an area in which Boston Scientific is also strong. They also said Boston Scientific would seek another company to share the rights to Guidant's stent technology. Although Boston Scientific's own technology has already made it the market leader in drug-coated stents, Guidant's uses a different drug that could allow Boston Scientific to sell a second kind of coated stent.

Boston Scientific executives estimated that after acquiring Guidant, its annual revenue would be $9 billion in 2006, from its current $6.3 billion. The expanded company would be the biggest cardiovascular device maker and the third-largest medical-device maker overall, after Medtronic Inc. and Johnson & Johnson.

''If you take a blank sheet of paper, this is the kind of company you'd create," LaViolette said yesterday.

The offer also boosted St. Jude Medical Inc. of Minnesota, the number-three maker of cardiac defibrillators, which is also considered a takeover target for a device company looking to expand. Its stock gained $2.29, or 4.7 percent, to close at $50.56.

Stephen Heuser can be reached at sheuser@globe.com.