The Bidding War for Guidant

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&J’s most recent bid of $71 a share with an aggressive bid of $80 a share. Within nine hours of receiving BSI’s bid, GDT’s board declared it a “Superior Proposal� 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 BSI’s bid is “fraught 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 I’ve said before, price is only one factor in evaluating competing bids. It’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., MCI’s decision to sell to Verizon notwithstanding Qwest’s higher bid).