INVESTING: Confused by Guidant? Here’s the CliffsNotes version

I’ve developed whiplash trying to follow the Guidant story. This situation has it all: drama, suspense, confusion, even death. I am going to offer a quick rehash of what has happened, what it can mean locally and what, if any, profit opportunities remain.

To get the entire story straight would take a new series called “CSI Indianapolis,” but here is a CliffsNotes version instead. Guidant was a division of Eli Lilly until 1995. Lilly spun Guidant off at around $5 a share, and the stock rewarded investors well until topping out in 2000. Guidant hit $75 a share in March 2000, then fell all the way to $25 by October 2002, even though business was still going well.

As the stock rebounded in 2003, Guidant found itself behind in the race to come to market with a drug-coated stent. Johnson & Johnson and Boston Scientific each launched drug-coated stents to high acclaim and massive revenue in 2004. Guidant, however, embraced the increasing popularity of its defibrillators and pacemakers.

The rhythm-management market held so much promise that in December 2004 Johnson & Johnson offered to buy Guidant for $25 billion, or $75 a share. That’s right back to the old high of 2000, so Guidant leaders decided to go for it and sell to Johnny J.

But then news stories started coming out about defective defibrillators, some resulting in patient deaths, and the company announced recalls. The Food and Drug Administration and other regulators jumped in and launched investigations.

Amid the turmoil, Johnny J got public pressure to decrease its offer or walk away. The company negotiated a new, $22 billion price.

Along the way, Guidant executives sold big blocks of shares. In April 2005, then-CEO Ron Dollens sold $20 million in stock at $74.34 a share. And Chairman James Cornelius sold $30 million in July 2005 at $68 a share. They structured the deal. Why would they sell before the deal closed, and accept less than Johnny J had agreed to pay? Did they know problems were afoot?

After Johnny J lowered its price, Boston Scientific swooped in and offered $25 billion. The stock was back in play, and rebounded from $56 a share to $63.

The Guidant board gave consideration to Boston’s offer just long enough to receive a $23.2 billion bid from Johnny J. Guidant accepted that offer on Jan. 12, but Boston countered on Jan. 18 with a $27 billion bid.

If you own Guidant stock it probably makes sense to dump it now and move on. As for Indianapolis, despite being headquartered here, Guidant didn’t have a big local presence. We won’t miss the company that much. Guidant better have something great cooking in the lab now for all the noise it’s creating.

I doubt whoever ends up with Guidant is going to be happy with what they find. Because of their stock sales and their handling of the product problems, Guidant executives have lost their credibility.

Check out Medtronic or St. Jude Medical, instead. I think those two stocks are positioned to ring up solid gains in 2006. And with Guidant wrapped up so tightly in its soap opera, the road may be a little easier for the competition.

Hauke is the CEO of Samex Capital Advisors, a locally based money manager. Views expressed here are the writer’s. Hauke can be reached at 566-2162 or at

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