Guidant deal rides roller coaster:

December 26, 2005

Indianapolis-based medicaldevice maker Guidant Corp. spent most of 2005 shifting from one crisis to the next, as it endured national publicity over product defects, scores of shareholder and patient lawsuits, and marathon negotiations with potential buyers over its future.

By the end of the year, it still had no clear vision for what that future holds.

New Jersey-based Johnson & Johnson agreed in December 2004 to buy Guidant for $25.4 billion in cash and stock.

That deal quietly moved through the approval process until May, when The New York Times reported that Guidant did not tell doctors for three years that a defibrillator model implanted in thousands of people contained a flaw that caused a small number of those units to short-circuit.

Guidant fixed the flaw in 2002 but didn't disclose it until this year, after a 21-year-old college student with one of its devices died.

Subsequent recalls and other product problems shook doctor confidence in Guidant and led to a slew of individual and class-action lawsuits from patients, their families and company shareholders.

As summer turned to fall, Guidant's defibrillator sales began to recover. Then in October, a J&J executive told analysts that Guidant's problems had prompted his company to consider "alternatives under our merger agreement."

J&J argued that the Guidant troubles gave it a legal right to back away from their original agreement. On Nov. 7, Guidant responded with a lawsuit in federal court, seeking to force J&J to close.

On the same day, Guidant disclosed that the Securities and Exchange Commission had launched "a formal inquiry" into trading in the company's stock. Experts say the probe probably focuses on heavy selling by company insiders before Guidant shares declined in price.

A week after Guidant sued J&J, the two companies patched their differences and agreed to a revamped deal worth $21.5 billion, or $63.08 a share, in cash and stock.

Then Boston Scientific Corp. entered the picture. On Dec. 5, the Massachusetts-based company unveiled an offer to buy Guidant for $25 billion, or $72 a share, in cash and stock.

Guidant responded a couple of days later by announcing that it will open discussions with Boston Scientific but its board "is not making any recommendation at this time with respect to Boston Scientific's proposal."
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