Johnson & Johnson should probably thank Boston Scientific for snatching control of medical device-maker Guidant from under its nose earlier this year. After all, Boston’s share price has slumped 37 per cent since its bid was recommended. J&J also walked away with a tidy $705m break fee. Instead, J&J is suing its rival for $5.5bn.
It is unclear how J&J gets to such a number and it seems extraordinary that the suit is being filed now, instead of when it might have affected the outcome of the bidding. But it does raise an interesting issue for future deals. J&J’s complaint hinges on interpretation of its merger agreement with Guidant. Basically, J&J is claiming Guidant had the right to share confidential information only with a rival, unsolicited bidder likely to submit a superior offer.
However, it claims Boston came in as such a bidder and confidential information was then also shared with Abbott Laboratories. Boston went on to pre-sell an asset to Abbott. That both provided extra cash for its bid and neutralised the antitrust risk that would otherwise have reduced the appeal of Boston’s offer to Guidant. It effectively allowed Boston to beat J&J.
With bidders regularly bringing third parties into battles – particularly private equity – the issue does matter. It is clearly in the interest of a seller that potential bidders have all the weapons possible to maximise the price they can pay. For the bidder with a merger agreement, however, it makes sense to limit a rival’s ability to share information more widely, and lure in allies.
The case probably says most about the bad blood that remains between J&J and Boston. But, even if the lawsuit goes nowhere, it should focus lawyers and bankers on quite how important the wording of such clauses can prove in contested bid battles.