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 A federal court judge in New York will hear the case without a jury
and decide whether Guidant, through its successor Boston Scientific,
should be held liable for breaching a contract with J&J.
J&J seeks in excess of $5 billion in damages and interest from
Boston Scientific, a potentially massive judgment against a company
that as of Tuesday had a market capitalization of $17.8 billion.
The two-part trial before U.S. District Judge Richard Sullivan is
expected to go into December as lawyers revisit the details, and the
aftermath, of the nine-year-old Guidant battle.
Underscoring the stakes, Boston Scientific has brought in well-known
litigator David Boies. Johnson & Johnson will answer with a
high-profile lawyer of its own, Sean Coffey, perhaps best known for
winning a $6 billion judgment against big banks in the wake of
WorldCom's collapse.
The companies declined to comment ahead of the trial.
Jefferies Group analyst Raj Denhoy said in a note that the case
"represents a major near-term risk" for Boston Scientific.
J&J and Guidant, which made cardiovascular devices, struck a deal to
combine in 2004 and later agreed to a $21.5 billion price. To
satisfy antitrust concerns, J&J said it would sell a portion of
Guidant's business to Abbott Laboratories.
The deal included a "no-solicitation" clause that prohibited Guidant
from seeking better offers, though it was permitted to consider
unsolicited bids.
Before the merger closed, Boston Scientific made a $25 billion offer
and also said it would sell assets to Abbott. J&J became convinced
that Guidant had provided due diligence to Abbott as it worked on
the Boston Scientific offer, in violation of its agreement.
Without that move, J&J says, Abbott would not have signed on,
leaving Boston Scientific unable to win what became a bidding war.
Boston Scientific eventually bought Guidant for $27 billion, while
J&J received a $705 million termination fee.
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J&J sued Guidant and Abbott in 2006, claiming breach of contract.
Abbott has since been dismissed as a defendant.
Boston Scientific plans to argue that Guidant did not knowingly
violate the agreement, according to court papers.
It has also questioned whether J&J can prove it lost money. J&J's
stock has soared since, while Boston Scientific's has fallen, in
part over problems with the Guidant deal. In pretrial filings,
Boston Scientific cited a Fortune magazine article that called it
the "biggest M&A blunder since AOL/Time Warner."
J&J will counter that its deal would have succeeded, given its
superior resources. It will also point to documents that it says
show Guidant knew at the time that its actions were in breach of the
agreement.
(Reporting by Joseph Ax; Editing by David Ingram and Grant McCool)
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