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Boston Scientific Settles $7.2B J&J Suit for $600M, Stock Up - Analyst Blog

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Shares of medical equipment manufacturer Boston Scientific Corporation ( BSX ) jumped 12.4% yesterday, subsequent to the company's settlement of a lawsuit, brought by renowned pharmaceutical company, Johnson & Johnson ( JNJ ), against one of its subsidiaries - Guidant Corporation. Not only that, the $7.2 billion lawsuit that was filed way back in 2006 has been settled by Boston Scientific for only $600 million.

On Jan 13, 2006 Indiana-based medical products manufacturer Guidant Corporation had entered into a merger agreement with Johnson & Johnson, or J&J. Per the deal, J&J had agreed to acquire Guidant for equities worth $24.2 billion. On Jan 25, 2006 Guidant however declared that it had terminated its merger agreement with J&J and instead signed a fresh one with Boston Scientific for a higher sellout value of $27 billion.

Following the termination of the contract with J&J, Boston Scientific had paid a termination fee worth $705 million to the latter. However, as reported by Bloomberg, later in Sep 2006, J&J slapped charges of $7.2 billion on Boston Scientific claiming that the latter has forcefully interfered in its deal with Guidant, thereby causing a breach of contract on Guidant's part.

Following the latest settlement announcement, J&J has agreed to dismiss its lawsuit without acknowledgment of liability by Guidant. Boston Scientific has also decided not to bring up any patent infringement or other claims against certain stent products of J&J.

Management at Boston Scientific has agreed to pay a total amount of $600 million to J&J. The amount is expected to be accounted as a pre-tax litigation related charge in the company's fourth-quarter 2014 results. However, this charge will not be part of the adjustments leading up to its adjusted income, which means that EPS will remain at 15 cents as per the company's quarterly earnings report earlier this month.

Management at Boston Scientific seems relieved with the closure of this longstanding litigation that had been going on between the company and J&J almost for a decade now. With the legal burden off its shoulders now, Boston Scientific expects to focus more on delivering innovative products to its customers.

We view this relatively inexpensive settlement as a major positive for Boston Scientific, given the fact that this lawsuit had been a major overhang over almost nine years for the company's management.

Currently, both Boston Scientific and J&J carry a Zacks Rank #3 (Hold). Better-ranked medical product stocks include Abaxis, Inc. ( ABAX ) and Phibro Animal Health Corporation ( PAHC ). Both these sport a Zacks Rank #1 (Strong Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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