The Guidant acquisition has saddled Boston Scientific with countless woes. Now the suitor that lost, Johnson & Johnson, is drinking Boston Sci's milkshake, so to speak.
Boston Scientific has agreed to pay $600 million to Johnson & Johnson to settle a federal lawsuit over Boston Sci's acquisition of Guidant Corp in 2006.
News of the settlement Tuesday sent Boston Sci's shares up $1.65 per share, or 11%, to $16.49 in aftermarket trading, and it continued to trade around that level Wednesday. Johnson & Johnson shares dipped by 0.7%, to $99.70.
There was no acknowledgement in the settlement of any wrongdoing on the part of Guidant, which J&J accused of improperly feeding due diligence information directly to Abbott Laboratories. Abbott then helped Boston Scientific with its purchase by buying divested pieces of Guidant. New Brunswick, NJ-based J&J, which had a merger agreement to buy Guidant instead, had sought more than $7 billion in damages over the alleged breach of the agreement.
The irony in the case is the string of woes that beset Boston Scientific after buying Indianapolis-based Guidant, which had substantial operations around the Twin Cities. Fortune described the acquisition of the cardiac device maker as the "(second) worst deal ever"--only eclipsed by AOL's notorious purchase of Time Warner in 2000.
J&J agreed to drop the lawsuit without acknowledging any wrongdoing by Guidant. Boston Scientific (Marlborough, MA) also agreed not to bring patent infringement or other claims related to Johnson & Johnson's S.M.A.R.T., S.M.A.R.T. Control, and S.M.A.R.T. Flex stent products, the company statement said.
Boston Scientific expects to record a pre-tax litigation-related charge of approximately $600 million within its fourth quarter 2014 results.
This is not the first time that Boston Scientific has hemorrhaged money over Guidant.
Boston Scientific has suffered over $6.2 billion in goodwill impairments since the 2006 deal. It inherited a host of defibrillator-related legal troubles from Guidant.
A federal judge in St. Paul, MN in 2011 formally convicted and sentenced Boston Scientific to pay $296 million because Guidant in the past had withheld information from the FDA regarding catastrophic failures in some of its lifesaving devices. The U.S. Justice Department said at the time: "Guidant made decisions at various junctures to conceal information from the FDA and medical professionals regarding the device failures. In June 2005, the company finally went public about the problem with information it had known for 10 months, and then only after three deaths had occurred."
In 2013, Boston Scientific agreed to pay $30 million to settle federal allegations that, between 2002 and 2005, Guidant knowingly sold defective heart devices to healthcare facilities that in turn implanted the devices into Medicare patients
How It All Started
When Guidant went public about the problem of implantable defibrillator failures in 2005, it was only a few months after J&J had announced its plans to acquire Guidant for $25.4 billion. The scope of the problem appeared to grow, and Guidant announced that 56% of its pacemakerswere potentially unsafe. J&J got cold feet, and in October 2005, announced its interest in backing out of the deal. Guidant then sued J&J to complete the deal, which it then planned to do, lowering its offer to $21.5 billion.
Boston Scientific executives, however, had their own ideas, and started a bidding war with J&J over Guidant. Abbott Laboratories, Inc. offered to help Boston Sci complete the acquisition so Abbott could buy Guidant's vascular intervention business. With Abbott's help, Boston Sci raised its offer to buy Guidant to $27.2 billion, which Guidant then accepted.
Boston Scientific then sold Guidant's stent and vascular unit to Abbott for $4.1 billion plus a $900 million loan, according to a report in the Minneapolis Star Tribune. A court dismissed Abbott from the case in 2007.
It's hard to see now why Boston Scientific was so keen on buying Guidant then. As Fortune reported, after Boston Sci picked up Guidant, its stock fell 46% in less than a year, erasing $18 billion in shareholder value. In addition to the now-settled litigation with J&J involving the Guidant deal, Boston Scientific has had to contend with lawsuits involving Guidant products sold a decade ago.
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Nancy Crotti is a contributor to Qmed and MPMN.
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