Guidant sued Monday to force Johnson & Johnson to complete a $25.4 billion purchase of the troubled medical-devices maker. It also reported a...
Guidant sued Monday to force Johnson & Johnson to complete a $25.4 billion purchase of the troubled medical-devices maker. It also reported a plunge in quarterly profit.
Guidant filed suit in federal court in New York after J&J balked at closing a transaction arranged in December.
Since June, Guidant has recalled 109,000 faulty cardiac defibrillators, the stock has fallen 20 percent, and rivals have taken away sales.
Johnson & Johnson said Monday it is not obligated to buy Guidant because of a “material” change in its outlook.
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Johnson & Johnson may be seeking a lower price, said Keay Nakae, an analyst with C.E. Unterberg Towbin in San Francisco.
Guidant, the second-biggest maker of implantable defibrillators behind Medtronic, refused to renegotiate the terms, J&J said last week. The purchase would be the biggest in J&J’s 119-year history.
“From J&J’s standpoint, they don’t want to overpay for an asset they think might be overvalued,” said Nakae, whose firm doesn’t hold either stock. “You had to expect it was going to come down to a legal fight.”
Johnson & Johnson said it would “vigorously oppose” the lawsuit. In the suit, Guidant called J&J’s position “meritless.”
“The company views the previously announced product recalls at Guidant and the related regulatory investigations, claims and other developments as serious matters affecting both Guidant’s short-term results and long-term outlook,” J&J said.
Guidant’s shares fell $1.40 to $57.52 Monday. The price was 24 percent below the $76 a share in cash and stock J&J agreed in December to pay. Shares of Johnson & Johnson rose 55 cents to $61.43.
Guidant’s third-quarter sales of implantable defibrillators fell 26 percent; pacemakers dropped 15 percent.
Profit plunged 64 percent to $65.4 million, or 20 cents a share, from $153.6 million, or 49 cents, a year earlier, according to Monday’s earnings statement. Revenue dropped 14 percent to $795 million.
Guidant faces federal investigations and state fraud claims in New York. In an SEC filing Monday, Guidant said it received subpoenas last month from U.S. attorneys in Boston and Minneapolis for information on marketing practices.
The company also disclosed a subpoena in September from the California attorney general for information about its stents and catheters.
The acquisition of Guidant would add heart-rhythm products to a lineup that already ranks Johnson & Johnson the world’s biggest maker of medical devices.
The purchase agreement says Johnson & Johnson “may be obligated” to pay Guidant a breakup fee of $700 million, according to a December filing with the Securities and Exchange Commission.
Guidant’s suit seeks an order for J&J to complete the deal at $76 a share, and the judge wouldn’t have discretion to alter the price, said Victor Lewkow, senior mergers-and-acquisitions partner at Cleary, Gottlieb, Steen & Hamilton.
The judge may be reluctant to issue such an order if he concludes there is too much antagonism between the companies, Lewkow said.