With one day left to seal the deal on Johnson & Johnson's $25.4 billion acquisition of Guidant, New York Attorney General Eliot Spitzer...
INDIANAPOLIS — With one day left to seal the deal on Johnson & Johnson’s $25.4 billion acquisition of Guidant, New York Attorney General Eliot Spitzer said Thursday he was suing the medical-device maker for concealing information about a design flaw in a heart defibrillator.
Even if the deal that the two companies agreed to 10 months ago goes through, J&J likely will pay significantly less than the original price, some experts said. And if J&J scraps it, the companies may find themselves in court.
While the agreement stipulates a $700 million breakup fee, J&J has already suggested that a stream of product recalls in recent months by Guidant, as well as federal investigations into the device maker, may have had the materially negative impact that would allow it to simply walk away.
The companies have until today to close the purchase.
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“That deal is a goner — it’s DOA,” said Anthony Sabino, a mergers and acquisitions attorney and a professor at St. John’s University, after Spitzer’s announcement. “You could knock me over with a feather if they go through with this.”
Spokesmen for J&J and Guidant declined to comment Thursday.
Shares of Guidant fell 4.7 percent, or $2.83, to close at $57.57 Thursday. J&J stock dropped 10 cents to $61.20.
Not everyone was convinced the companies would scrap their plans.
Alex Arrow, an analyst with Lazard Capital Markets, said the deal would still go through but at a significantly lower cost.
“We believe the main motivation behind [J&J’s] statement may be to gain extra negotiating leverage,” he wrote in a research note released Thursday morning.
Analysts speculated the $76-per-share proposed acquisition price could drop as low as $60 per share. Glenn Novarro, an analyst with Banc of America Securities, predicted that the deal would go through at $69 per share.
Since June, Guidant has recalled or issued warnings on about 88,000 heart defibrillators — including its top seller, the Contak Renewal 3 — and almost 200,000 pacemakers because of reported malfunctions.
The company faces multiple lawsuits from patients and shareholders, as well as a reported criminal investigation by the U.S. Food and Drug Administration.
Federal prosecutors in Boston and Minneapolis last week issued separate subpoenas seeking documents about Guidant’s devices and its Ventak Prizm 2 and Contak Renewal 1 and 2 defibrillators.
Spitzer filed the civil lawsuit Wednesday in state Supreme Court in Manhattan against the maker of medical devices.
“We wouldn’t permit this type of conduct in connection with the sale of cars or washing machines,” Spitzer said. “It is simply unconscionable that it occurred with a critical medical device.”
Spitzer accuses the company of failing to disclose a flaw in its Ventak Prizm 2 DR Model 1861 cardio defibrillator.
The device is surgically implanted into a patient who is at high risk of death because of an abnormal heart rhythm and emits an electric shock to restore the heart beat to normal. A heart could stop if the device fails.
The attorney general claims Guidant discovered the flaw in February 2002 in some models that short circuited.
The company didn’t acknowledge the problem with the early model until May 2005, just before the flaw was to be revealed in a newspaper article. In June, Guidant recalled about 13,900 of the devices made before April 2002.