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| The Xience Xpedition drug-eluting stent--Courtesy of Abbott |
A titanic struggle is nearing its end. Rivals Boston Scientific ($BSX) and Johnson & Johnson ($JNJ) are done presenting their arguments in a legal spat involving the disastrous 2005-2006 bidding war and purchase of cardiology player Guidant. The purchase threatens to become an even worse decision for acquirer Boston Scientific, which would owe $7.2 billion if J&J gets its way.
The suit centers on the role played by Abbott Labs ($ABT), which allowed Boston Scientific to steal Guidant from Johnson & Johnson at the last second. By promising to buy some of Guidant's product lines from Boston Scientific upon the closure of the deal, Abbott freed Boston Scientific of antitrust concerns, enabling it to complete the $27 billion acquisition. J&J says Guidant violated its confidentiality agreement when the then-"hot" company allowed Abbott to inspect its business in order to make the side deal with Boston Scientific.
The winning bidder ended up receiving a company that was plagued by product quality issues. The deal closed in the spring of 2006, but by June of that year, Boston Scientific had to issue recalls or warnings on 50,000 Guidant defibrillators and pacemakers according to an October 2006 story in Fortune.
Note that Guidant's product safety problems were already known before the transaction was completed. The company conducted a massive 290,000-device recall of its pacemakers in 2005, which led to it accepting to be purchased by J&J at a lowered price of $21.5 billion, prior to Boston Scientific's winning $27 billion bid.
Boston Scientific's write-offs from the deal have exceeded $6 billion. The company argues that it unknowingly spared J&J from those financial losses. "The plaintiffs' damages, even if they proved a breach, are zero," Boston Scientific attorney David Boies told U.S. District Judge Richard Sullivan during the trial, according to Bloomberg.
Sullivan asked J&J why it didn't complain about Abbott's role earlier, saying, "There's a glaring absence of the sorts of emails and documents you would expect if you thought you had just been hosed on a multibillion-dollar deal," according to Reuters. J&J responded that it didn't know the full circumstances at the time, according to the article.
But J&J won't settle for counting its blessings over a danger-laden path not taken. "What made the breach material was that Boston Scientific was not going to make an offer if Abbott was not involved," said J&J attorney Harold Weinberger, according to Reuters.
In the end, Abbott ended up the winner. For $3.8 billion, it acquired Guidant's stent business, including the successful Xience model, which is now in its fifth iteration. But J&J was furious and soon after losing out on Guidant, it ended a co-marketing agreement with Abbott over the Cypher stent, Fortune's detailed account of the transaction says.
Meanwhile, potential damages associated with lawsuits over Guidant, vaginal mesh implants, and IRS transfer pricing are a dark cloud hanging over Boston Scientific. Equity analysts at Leerink, who are bullish about the company's stock, say that the worst case scenario is $8 billion in damages for all three suits combined.
This would indicate that J&J isn't likely to get most of the $7.2 billion, but that's now in the hands of Judge Sullivan, who did not indicate when he would arrive at the decision.
- read Bloomberg's story
- read Reuter's story
- here's Fortune's historical account