Johnson & Johnson, Guidant and Boston Scientific Bid It Out - But JNJ Can't Lose.
As a former employee of Johnson & Johnson (JNJ) for nearly seven years, I have seen the company go through numerous acquisitions. This is common with a business of Johnson & Johnson's size as it servers as the quickest way for them to continue expanding. Currently Johnson & Johnson is in a bidding war with Boston Scientific (BSX) over the highly sought after, cardiovascular device business of Guidant (GDT) - but is this a war that Johnson & Johnson can't lose?
I think there is more here then simply gaining share of the enormous cardiovascular device business. This is about business strategy and a game that I think that Boston Scientific can't win. I don't think that Johnosn & Johnson cares if it gets Guidant at all. If they do, then they win cause they have the money to pay for it and it’s really expands their business in that field. Another strategy that Johnson & Johnson can afford to do is to force Boston Scientific to make an offer to Guidant that they can't refuse. Currently Guidant Corp.'s board unanimously endorsed a new, $23.2 billion bid from Johnson & Johnson. This bid is actually lower then the $25 billion dollar offer made by Boston Scientific, but because of Johnson & Johnson’s reputation, market stability and other complicated issues, Guidant has endorsed the JNJ offer.
This is where it gets interesting. If Boston Scientific wanted to really compete with JNJ they would have to up their bid again. At this point, the current price would really put a strain on BSX's financial status and actually lower them. Should BSX bid higher, then I think they are playing right into JNJ's hands. This is a business and competition is inevitable and in the end it’s all about gaining advantages through strategic business choices. JNJ has forced BSX to raise its bid and I think if BSX did then JNJ would have no problem giving them the company because they know how much it would hurt them financially. This being said, should the investment of buying GDT turn out to be a bad one, then BSX is in trouble in more ways then one. They won't have the capital to back them up like they use too and JNJ can really put pressure on them from all directions.
On a side note - I think that both BSX and JNJ have been hit pretty hard and unjustly in the stock market. Look for these stocks to rebound after the deal closes. I do not think it will matter the outcome of the acquisition - the market just wants to see this deal closed and over with. Look for a short term ralley as the deal gets closer to closing. Any thoughts?