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BEHIND THE NEWS: Payoff from Guidant sale disappoints some analysts New Warsaw public company More big Conseco pay

January 3, 2005

Guidant Corp.'s sale to Johnson & Johnson is valued at an eye-popping $25.4 billion, the largest price tag ever for an India n a p o l i s - b a s e d company.

Even so, for shareholders the merger doesn't create the euphoria often associated with mega-deals. Guidant shares barely moved on the first day of trading after New Jersey-based J&J announced the $76-a-share pact.

Analysts say part of that is because investors already had factored expectations of a sale into Guidant's stock price.

"It's been pretty much the worst-kept secret on Wall Street," one observed. Since late July, before rumors of a merger began to swirl, Guidant shares have risen a robust 40 percent.

Nonetheless, some analysts have trouble getting excited about the sale price. First Albany Corp.'s Jason Mills had projected Guidant shares on their own might reach $81 within 18 months. Other analysts thought surging defibrillator sales might help drive shares as high as $90.

"Many of us are significant believers in Guidant long term," Bear Stearns analyst Rick Wise said in a Dec. 16 teleconference with executives of J&J and Guidant. "[We] had envisioned a great deal of success over the next couple of years and envisioned a much higher stock price. Why this price? Why now?"

On the teleconference, Dollens defended the price, calling it "correct." In a separate interview with IBJ, he said the analysts' projections were based on myriad assumptions, which could prove right but also aren't guaranteed.

For example, analysts are betting that after several stumbles Guidant will successfully bring to market its first drugcoated coronary stent, a product they believe will revive the company's flagging stent sales.

"The people who have said $90 a share generally talk about it being out 18 months. And it assumes with 100-percent certainty your drug-eluding stent program will go forward in a very robust manner. And that you will be a significant market leader in that field, where there are four different competitors," Dollens said.

He added: "That is possible. Absolutely that is possible. ... But it is a new area for us. So you can't assume it is absolutely risk-free."

Given those uncertainties and others, Dollens said, getting $76 a share now "works very nicely for us."

Warsaw, the northern Indiana hamlet with a mere 12,400 residents, continues to dazzle the rest of the state with its orthopedics-related entrepreneurship. The latest example: Symmetry Medical Inc., which raised $120 million in a Dec. 4 initial public offering.

Founded in 1976, Symmetry provides implants and related instruments to orthopedic device manufacturers, three of which are also headquartered in Warsaw: Biomet Inc. and Zimmer Holdings, both publicly traded; and DePuy Inc., owned by J&J.

Symmetry's sales in 2003 reached $122 million, nearly double the year before, in part because of an acquisition. Its major shareholder is Olympus Partners, a Stamford, Conn., investment firm. The sale of 8 million shares in the IPO shrunk Olympus' stake from 85 percent to 64 percent.

So far, other investors like what they see. Shares now are trading at about $19.50, up $4.50, or 30 percent, since the IPO.

Conseco Inc.'s new CEO, William Kirsch, isn't scrimping on compensation when it comes to bringing in executives he thinks will help revive the Carmel insurer.

The latest example: James Hohmann, 48, who will serve as executive vice president and chief administrative officer, a post that puts him in charge of product development, strategic planning and other key areas. For the past three years, Hohmann was president and CEO of XL Life and Annuity, a U.S.-based unit of Bermuda's XL Capital Ltd.

His employment contract, filed with the U.S. Securities and Exchange Commission, shows his annual salary of $450,000 represents just a modest slice of his compensation package.

Even though Hohmann didn't reach the agreement until Nov. 29, the contract shows he'll receive a $150,000 bonus for 2004, plus a special $450,000 bonus to be paid in January.

In addition, the contract guarantees he'll receive a bonus of at least $450,000 for 2005. Other provisions include a grant of 200,000 stock options and 200,000 shares of restricted stock. The value of the options will depend on the performance of Conseco stock over time. The restricted stock grant already is worth nearly $2 million.

Conseco shares have languished since the company emerged from bankruptcy in September 2003, and analysts say management has a long way to go to bolster profits. So Hohmann has a big job. But if he ever gets overwhelmed, he can take solace in the fact that his contract entitles him to six weeks of paid vacation.
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