Guidant – JNJ - BSX-2004 (1)

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1 Guidant – Johnson & Johnson, Boston Scientific 12/7/2004: Rumor of JNJ-GDT merger talks. P GDT : $72.35, +$3.60, +5.2 %. S GDT = $ 22B . P JNJ : $60.41, -$1.42, – 2.3 %. S JNJ = $ 180B . GDT : cardiovascular devices – heart defibrillators, pacemakers, stents, etc. Market size: $10 B. 12/15/2004: J&J announces an agreement to acquire Guidant for $76/share , valued at $ 23.9B (the equity value only). “Under the agreement, Guidant common stock will be exchanged for $30.40 in cash and $45.60 in J&J common stock, so long as the average J&J price is between $55.45 and $67.09 during the 15-days trading period ending three days prior to the transaction closing.” (TheStreet.com, 12/16/2004). Deal awaits regulatory approval. JNJ: 30%-35% of stent market, GDT: 20%. Break-up (termination) fee: $750m from GDT to JNJ, $700m from JNJ to GDT. Prices : GDT JNJ BSX 12/14 71.00 61.43 35.88 12/15 72.05 60.90 36.49 12/16 71.70 63.45 35.47 4/27/2005: GDT SHs approve the deal. 11/2005: Regulatory approval granted with conditions – sale of some lines.

2 Earlier … 5/24/2005: (NY Times:) Guidant did not tell patients or doctors about a flaw in one of its defibrillators. 7/1/2005: GDT announces a recall of some defective cardio devices. Malfunctions linked to four deaths; lawsuits against GDT. Rumors: GDT delayed in disclosing the information to doctors. Later: Regulatory investigation into GDT’s past disclosure practices. 11/2/05: JNJ demands restructuring of the deal. “J&J believes these events had a material adverse effect on Guidant.” (The contract includes a MAC or MAE provision.) JNJ will break the acquisition agreement if terms are not altered. Also, in Q1/2005 – GDT net income increases, but in Q2/2005 and Q3/2005 – income declines below Q4/2004 level. From 11/1 to 11/3, GDT drops 9% to $57.57 . Was $72.80 on 12/31/2004 and $72.38 on 10/17/2005.

3 11/7/2005: GDT sues JNJ not to break the contract. Commentators: given the precedents, the law is on Guidant side , but J&J has better facts than others in the past. 11/15/05: J&J agrees to buy GDT for $21.5B , $ 63.08 /shr. Terms: $33.25 cash, $29.83 in 0.493 JNJ shares. Agreement needs to be approved again by GDT SHs, January 31 vote. GDT price jumps from $57.90 to $62.50, +$2.06B . J&J price +3.3% +$6.2 B . New termination fee: $ 705m from GDT to JNJ. 12/5/2005: Boston Scientific offers to buy GDT for cash & stock (1/2), $72 /shr. Deal to close by Q1/2006. Offer has collar (between $23.60 - $28.86 of BSX price). BSX will divest some of GDT business to gain regulatory approval (still in question). Value: About $23B . Analysts: JNJ can respond by (1) increasing the cash part, (2) have one-way collar with the down side guaranteed, (3) expedite closing. GDT price: $67.98, +10%. BSX price: $26.35, –3.6%. Merrill, Bank of America agree to lend $7B each. This debt to be paid by 2009.

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4 BSX will sell GDT’s drug-coated stent and catheter units to Abbott Labs (ABT) for $4.1 B + borrow from Abbott $0.9B at 4% + sell about 4% of the joint company (about 56m shrs) for $1.4B , total $6.4B. (How does ABT know how much to pay??? See later…) BSX will borrow $8.5B from banks, which agreed to lend up to $14B. Now, S BSX = $20.7B, D BSX = $2.5B. 1/11/06: GDT accepts JNJ’s offer of $68.06 (> $63.08 but < $72, BSX offer). $37.25 cash + $30.81 stock (0.493 JNJ shares @ $62.50) P JNJ = $62.21 (declines), value of offer = $67.92. P GDT = $ 70.44 (+$1.05). 1/13/06: BSX raises its offer to $73 . Sets deadline today 4pm for GDT to decide between offers. Add’l features: 1) Price raised daily if a deal doesn’t close by 3/31 (about $4.5m a day). 2) BSX commits to divest all overlapping assets.

5 1/14/2006: GDT accepts a new JNJ bid, $71 . $40.52 cash + $30.48 (0.493 JNJ shares). GDT SHs call for management to accept BSX higher offer. P GDT = $70.84 (1/13). 1/17/2006: BSX raises its offer to $80 ($42 c+ $38 s) ($27.2B  cash = $14B) Lower end of collar reduced from $23.62 to $22.62. Cash part will rise daily @6% annual rate after April 1 until closing. P GDT = $76.22 ( +8.2% ). P BSX = $23.90 ( – 5.2% ). GDT states acceptance . BSX gives GDT a deadline, 1/25. GDT gives JNJ a deadline, 1/24. 1/25/2006: JNJ will not raise its bid. Says it would not be in the best interest of its SHs. GDT accepts BSX offer of $ 80 . (Effective Cost: $82 because of TF). Requires SH approval in both firms. Requires regulatory approval. BSX plans to become “world leader in cardiovascular devices.” P GDT = $75.30 (–1.9%). P BSX = –1.7%. P JNJ = –1.7%.

6 1/26/2006: The FDA sends BSX a warning letter on “serious regulatory problems” at three of its facilities. BSX price drops. BSX’s stock offer, $38, includes a collar. Lower range at P BSX = $22.62 . Info in SEC filing: breakup fee of $ 800m (both ways). On 1/30, P BSX = $20.90. P GDT = $72.26. 2/1/2006: Regulatory approval of the deal is not guaranteed because of BSX’s regulatory problems with the FDA. Analysts: JNJ may come back with a higher offer than its previous $71/shr if BSX price falls significantly. (Bus. Week).

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7 2/6/2006: BSX filed notification with the DoJ and the FTC of its intention to acquire GDT. GDT also files its notification. BSX reimbursed GDT $705m breakup fee paid by GDT to JNJ. If the deal breaks up, GDT will have to reimburse BSX this amount. Info in filing: pro forma EPS estimated at $1.52-$1.66 for 2007 , $1.98-$2.17 for 2008, $2.24-$2.54 for 2009, $2.61-$3.02 for 2010 and $3.13-$3.59 for 2011 . EPS, ttm: BSX -- $0.70. GDT -- $1.24. Analyst: Regulatory approval is uncertain because Abbott – which buys the stent business – is a small player, BSX may have too much power. 2/13/2006: Moody’s downgrades BSX debt , which will grow from $2B to $ 9.6 B. “Even if the deal is not completed, it signals BSX management’s intention to increase leverage.” BSX will have to borrow roughly $9B. 3/20/2006: Institutional SH Service (ISS), a leading proxy advisory firm, recommends approval of the BSX-GDT deal. SH meeting scheduled for 3/31. GDT rises to $78.82 (+1.2%). 3/23/2006: BSX makes antitrust commitments to the European commission to resolve potential antitrust issues. 3/27/2006: EU investigation may delay the closing of the deal.

8 3/31/2006: Merger is approved by SHs of GDT (99%) and BSX (97%). Deal awaits antitrust clearance in the U.S. and Europe. (Both granted in April.) Analysts: BSX will not see earnings gain from deal until 2010. 4/21/2006: Closing of both the merger and the ABT deal. The deal ends up being for $ 78.88 /share, total value: $ 27B . (+$ 705 breakup fee) S&P lowers the debt rating of BSX from A to BBB+. Moody’s and Fitch also lower their rating of BSX’s debt. Late 6/2006: BSX recalls 50,000 Guidant’s cardiac devices. It could take two years to fix its safety problems. 9/21/2006: BSX issues a profit warning . Since offer in 12/2005, BSX lost 46%. JNJ offer would be higher (if its stock price were unaffected). BSX CEO spends two days a week at GDT HQs fixing problems and containing damage.

9 9/27/2006: J&J sues BSX, GDT and ABT for $5.5 billion in damages. Claims: the three companies illegally shared information on their way to scuttling GDT’s agreement to sell itself to J&J. The winning bid and side deal (sale of the stent division to ABT) would not have been feasible if GDT had not allowed ABT to review proprietary information about the units that it later bought. GDT had no right to allow ABT such a review; it violated the “ no solicitation ” clause in their agreement. 1-31-2007: BSX earnings fell 17% due to higher expenses related to its acquisition of GDT . 2/1/2007: Moody’s affirms BSX debt as Baa3 but changes outlook to negative . 7/25/2007: Moody’s downgrades BSX debt from Baa3 to Ba2 (“junk”) as the company’s cash flow no longer supports comfortably its debt level. 8/3/2007: S&P’s, Fitch downgrade BSX’s debt below investment grade (junk). BSX’s 5-year CDS trade at 315 b.p. up 31% from 8/1. Was 51 b.p. a month ago. Price of BSX bonds : -3% . Stock P BSX = $13.09, -2.5% (RM: -2%). BSX debt: $9B . Cash from operations in Q2: $211M . BSX may need to use revolving credit. Debt includes $5B of bank loans (taken to buy GDT). Variable rates . BSX has problems with sales of old GDT cardiovascular products , and with its coated stents . Potential lawsuits. BSX plans to sell 25% of its endo-surgery division, other assets.

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10 10/18/2007: BSX announces a layoff of 2,300 employees (about 12% of its workforce) that will reduce its annual expenses by about $525M in 2008. It expects to cut its 2009 expenses by additional $25M-$50M. Layoffs will result in pre-tax charge of $450-$475M. BSX will sell some of its operations, and will restructure and integrate some of its cardiac divisions. BSX paid in July about $ 195m to settle law suits tied to faulty defibrillators . Sales of defibrillators and drug-coated stents declined due to safety concerns. This led to the downgrading of bonds below investment-grade status. 11/20/2007: BSX reports a Q3/2007 loss . EPS: -$0.18. But includes $0.29 charge related to the purchase of Remron Medical Technologies and planned divestitures of some assets. EPS Q3/2006: $0.05. Drug-coated stents’ sales dropped 22% (safety concerns).( J&J sales fell by more .) BSX market share rose to 56 %. Implantable heart defibrillators’ sales rose 18% as Medtronic (a competitor) announced a recall of its defibrillators. P BS: +4.1% to $14.42. End of 2007 : BSX stock capitalization: $ 9.4B . Debt: $8.2B. Cash: $1.2B. EBITDA (ttm): $2.2B.

11 9/2009: Research shows that Abbott ’s stent (acquired from BSX, following the merger with Guidant) is superior to that of BSX. ABT’s stent is leader in market share. 9/29/2009: BSX will pay $716M to JNJ to settle 14 patent infringement lawsuits related to stents. BSX’s capitalization: $16B. Debt: $6.3B. NI: -$2.3B. EBITDA: $2.1B. BSX still faces problems with its acquisition of Guidant. 9/20/2010: BSX acquires Asthmatx, a privately-owned medical-device maker to treat asthma and bronchial problems that are not solved by drugs. Deal will be dilutive to EPS until 2013. Deal consists of a $193.5m in cash + $250m which is dependent on revenue- based milestones through 2019. (“Earnout” agreement.) From day -1 to +2, P BSX rises by 3.7% 5/15/2014: BSX agrees to acquire Bayer’s division of intervention cardiovascular products for $ 415m in cash.

12 2/17/2015: BSX will pay J&J $600m to settle a $7B lawsuit. J&J accused Guidant of breaking that deal. (This is in addition to the $705m breakup fee.) JNJ’s lawsuit claimed that GDT violated the merger agreement – which allowed it to consider competing bids but not to solicit them -- by providing due diligence directly to Abbott, thus enabling BSX’s offer. BSX’s capitalization: $22B . 6-11-2018: Stryker (SYK) makes a takeover approach to BSX. https://www.cnbc.com/2018/06/11/boston-scientific-shares-halted-on-report-that-stryker-has-made-a-takeover-approach-for-company.html S SYK : $65B. S BSX : $48B. SYK is a medical device company. Earlier -- 10-28-2010 -- SYK acquired the neurovascular division of BSX $1.5B. 6-13-2018: SYK denies report it’s in talks to acquire BSX. P BSX : 6-1: $30.59. 6-12: $33.84. 6-29: $ 32.70. (S&P500 – flat)

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13 12-1-2020: BSX to sell BTG Specialty Pharmaceuticals for $ 800M in cash to affiliates of European specialty pharmaceutical group SERB. 1-21-2021: BSX acquires Preventice Solutions (privately-held) for $ 925M in cash + earnout agreement -- up to an add’l $300M in a potential commercial milestone payment. BSX holds 22 % of Preventice; the required outlay is $ 720M . Preventice’s Sales in 2020: $158M. Preventice offers mobile cardiac health solutions and services, ranging from ambulatory cardiac monitors (short and long-term Holter monitors) and cardiac event monitors and mobile cardiac telemetry. P BSX : +2.3%, +$1.2B. S BSX = $ 52B . Acquisition completed on 3-2-2021. 3-3-2021: BSX will acquire Lumenis from an affiliate of Baring Private Equity Asia (BPEA) for $1.07B in Cash. Lumenis produces premier laser systems, fibers and accessories used for urology and otolaryngology procedures. BSX: Lumenis’s laser technology, paired with our LithoVue Single-Use Digital Flexible Ureteroscope and kidney stone management portfolio, will enable execution of our strategy for our stone franchise. The acquisition will expand our global footprint throughout Europe and Asia.

14 6-24-2021: BSX exercises Option to Acquire Farapulse, Inc. BSX has invested in Farapulse since 2014. Holds 27% of the company. Terms: $295M in cash (for 73%) + up to $92M upon achievement of certain clinical and regulatory milestones, and additional revenue-based payments for the next 3 yrs.