As most are probably aware, the ongoing bidding war for medical device manufacturer Guidant (GDT) was ratcheted even higher last Tuesday when Boston Scientific (BSI) topped J&Jâ€™s most recent bid of $71 a share with an aggressive bid of $80 a share. Within nine hours of receiving BSIâ€™s bid, GDTâ€™s board declared it a â€œSuperior Proposalâ€? pursuant to the J&J/GDT Merger Agreement thereby allowing GDT to terminate the agreement with J&J after the elapse of five business days (the fifth day is January 24). If GDT does terminate the agreement, JNJ is entitled to a breakup fee of $705 million (the breakup fee was proportionately increased from the previous $675 million).
According to this Bloomberg article, J&J is expected to up its bid and has been out on Wall Street claiming BSIâ€™s bid is â€œfraught with uncertainty.â€? To add to the uncertainty, J&J has thrown into the mix a potential J&J patent infringement suit against GDT. By calling attention to negative aspects of BSI’s bid, J&J can prevail (as it already has once) without having to match or exceed the bid. As Iâ€™ve said before, price is only one factor in evaluating competing bids. Itâ€™s not uncommon for a board to accept a lower bid because of factors such as form of consideration, regulatory requirements, financing issues, timing of closing, etc. (see, e.g., MCIâ€™s decision to sell to Verizon notwithstanding Qwest’s higher bid).