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Guidant (GDT) / Johnson & Johnson (J&J) / Boston Scientific (BSX)
Summary
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 One
of the largest deals of 2005 - 2006
Guidant
agreed to merge with J&J
- J&J - Guidant enter into a merger agreement 12.15.04
- $76 per share in stock and cash; $25.4B total
- Guidant shareholders approved the J&J merger 4.27.05
- J&J sought antitrust regulatory clearance
- HSR Act filing 1.18.05
- Gave a patent license to Abbott Labs to help
secure antitrust clearance
8.12.05
- FTC required asset divestitures
FTC press release 11.02.05
FTC docket
J&J
deal was recut following Guidant pacemaker recalls
- Guidant issued communications to physicians
from May 2005 to September 2005
- J&J told Guidant that it wanted a significant
reduction
in the deal price 9.29.05
- J&J made a public assertion that there had been a
material adverse effect on Guidant 11.02.05
- Guidant sued J&J
seeking specific performance of the original deal 11.07.05
- Guidant and J&J
agreed to cut the deal price 11.14.05
- $63.08 per share; $21.5B total
- Enter into revised merger agreement
Boston
Scientific made a
competing offer
- Initial offer of $72 per share (half stock, half
cash)
- J&J countered with increased offers
- First to $68.06
- BSX went to $73
- J&J then went to $71
Boston
Scientific won the bidding at $80 per share
- GDT terminated its agreement with J&J
- Paid J&J a $705mm break-up fee
- GDT-BSX enter into a merger agreement
- Abbott Labs supported BSX's offer
- By lending BSX funds
- By agreeing to acquire assets necessary to
antitrust clearance
J&J
sued Guidant, BSX and Abbott Labs for $5.5B 9.25.06
- Claims of breach of contract and tortious
interference
- Claiming that merger agreement's
no shop covenant was violated
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Initial J&J Deal
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Original
J&J deal
terms
- Guidant
was to be combined with J&J's Cordis subsidiary
to form a larger cardiovascular device unit
- $23.9 billion, stock and cash
- GDT: JP Morgan / Morgan Stanley / Skadden Arps
- J&J: Goldman / Cravath
 Agreements
- Reverse subsidiary merger
- Pricing formula (collar) - §2.01(c)
- Waiver of Indiana anti-takeover
statute
- Representations re: medical
devices
- No-shop covenant - §4.02
- Roll-over of stock options - §5.04
- Break-up fee: $750 million
(3.1%) - §5.06(b)
- Definition of "material
adverse change" - §8.03(c)
- Charter amendment
Proxy
solicitation
Fairness
opinions
- Seller:
JPMorgan Securities
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J&J Renegotiates Deal
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Guidant
hit with pacemaker recall
J&J
- GDT spar over material adverse change
Guidant shareholder approval
had triggered
vesting of equity compensation plans
- Shareholder approval deemed a "change of control"
for purposes of equity compensation plans
 Class action lawsuits filed:
SEC_CODE_REF_0090001192884
- Schatz & Nobel, PC 7.01.05
- Weitz and Luxenberg PC
- Include allegations that insiders have been
selling large amounts of Guidant stock,
including sales by Guidant CEO
- Complaint
(Yeroushalmi)
- Complaint
(Manning)
Parties
renegotiate the deal
- Merger consideration cut by 17%
- After buyer asserted a material adverse
change
- After seller sued buyer to force a closing
- GDT jumped from $58.00 to $62.50 on settlement
- $19.0 billion, stock and cash
- $33.25 cash plus 0.493 J&J share, per GDT share
- $63.08 per GDT share
GDT
shareholder meeting on J&J deal was set for 1.31.06
- 2nd meeting to approve revised J&J deal terms
- Original J&J deal was approved in April 2005
- GDT
mails proxy statement 12.29.05
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Boston Scientific Makes a Competing Offer
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GDT
got competing offer from Boston Scientific
- 14% premium to renegotiated J&J offer
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Boston Scientific Wins Bidding Contest
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J&J
looked to have won bidding for Guidant
- J&J first increased its offer by $4 to
$68.06
- To counter
competing Boston Scientific bid
of $72
-
Press release 1.11.06
- Boston Scientific boosted its bid to $73
per share
- J&J then struck new deal to acquire GDT for $71 per
share
Boston
Scientific then made a superior proposal
- By offering $80 per share 1.17.06
- J&J called BSX offer "highly diluted and
leveraged" 1.17.06
- ISS
recommended against J&J deal 1.20.06
BSX
- Guidant entered into a merger agreement
Proxy
solicitation
Deal
closed 4.21.06 |
No Shop Covenant Litigation
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J&J
sues for $5.5B
- Sues Guidant, BSX and Abbott Labs
- Guidant for breach of contract
- BSX and Abbott Labs for tortious interference
- Claiming that merger agreement's
no shop covenant was violated
- Guidant gave Abbott confidential information and
otherwise supported its participation in a competing offer
- Argues that exception for a superior proposal
didn't
apply to Abbott
- BSX made the superior proposal, not Abbott Labs
- "While Boston Scientific ultimately succeeded in
its takeover bid for Guidant, it did so only because Guidant leaked confidential
information to a third party, Abbott, for the purpose of arranging a prepackaged
divestiture of significant Guidant businesses to Abbott."
- Complaint relies on comments made by BSX's CFO
during an investor conference call
- "We had the opportunity to do a certain level of
due diligence. Abbott had the opportunity to do a much deeper dive on
due diligence."
Conference call transcript
1.09.06 At page 11
Litigation
documents
Relevant
merger agreement provisions
-
Proxy statement summary
- Covenant gave J&J five days to counter-offer
- J&J used this right to twice raise its offer to
split the difference between its offer and BSX's higher offer
- "provided, however, that no such termination
shall relieve any party hereto from any liability or damages resulting from the
wilful and material breach by a party of any of its representations, warranties,
covenants or agreements set forth in this Agreement."
- Plaintiffs invoke this provision to assert that
payment of break-up fee doesn't preclude its claim for damages
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