Johnson & Johnson has made a deal to buy Guidant Corp. a producer of medical equipment for patients with heart and circulatory illnesses, for $24 billion in stock and cash. Under the agreement, each share of Guidant stock will be exchanged for $30.40 in cash and $45.60 of Johnson & Johnson stock. The collar included in the agreement requires Johnson & Johnson stock to remain between $55.45 and $67.09 during a 15 trading-day period ending three days before the deal closes.

The acquisition will provide the health care giant with access to the rapidly expanding market for products like defibrillators and pacemakers as Guidant is a market challenger in the sector surpassed only by Medtronic. The market for implantable cardiac defibrillators (ICDs) that shock a heart back into beat is expected to slow down in the year to come, but can still be expected to exhibit 20% growth in 2005. The purchase of the second-largest player in the market will allow J&L to expand in this fast-growing area to compensate for the slowdown in sales of pharmaceuticals.

The transaction could be one of the largest acquisitions of the year, on a par with J.P. Morgan Chase’s purchase of Bank One and Cingular’s acquisition of AT&T Wireless for $58 billion and the largest acquisition in Johnson & Johnson’s 118-year history and will give a tremendous boost to the company’s medical-devices and diagnostics unit that accounted for the sales of $14.9 billion , a sizable contribution in the total company revenue of $41.9 billion.

Guidant will merge with analogous Johnson & Johnson division Cordis Corp. to from a new franchise that will carry the Guidant name, while keeping the Cordis name for several products.

Once the merger is completed, Johnson and Johnson can be expected to generate global revenues of $58billion in 2006.

The Guidant acquisition will dramatically reshape the medical device market challenging competitors like Medtronic, St Jude and Boston Scientific bringing in a new powerful player. Medtronic as the leader in the market may prove to be most vulnerable as it will now face a competitor five times larger in terms of sales.
Jan Wald, analyst at AG Edwards, said before the purchase: "We think that the loser in a potential J&J and Guidant combination could be Medtronic."