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Boston Scientific, Johnson & Johnson Bury The Hatchet With $600 Million Settlement

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Boston Scientific Corporation announced on Tuesday, Feb. 17, the terms of a settlement it reached with Johnson & Johnson regarding a breach in a merger agreement involving Guidant Corporation.

Boston Scientific acquired Guidant in 2006. Johnson & Johnson lost a bid for Guidant and sued Abbott Laboratories and Boston Scientific, accusing the two for interfering with a deal it had already made for Guidant amounting to $24 billion. According to Johnson & Johnson, Guidant was influenced by Abbott and Boston Scientific to breach their agreement.

Guidant paid $705 million to Johnson & Johnson for backing out of their deal while Boston Scientific sold Guidant's vascular and stent unit to Abbott to avoid antitrust issues for $4.1 billion and secure a $900 million loan.

In 2007, Abbott was dismissed from the case by the court.

Johnson & Johnson originally sought damages over $7 billion. In the settlement, the company will receive $600 million from Boston Scientific and has agreed to permanently drop the case. Boston Scientific will also not make patent infringement and other claims relating to the stent products S.M.A.R.T., S.M.A.R.T. Control and S.M.A.R.T. Flex.

"We feel this settlement is in the best interests of the company and its shareholders. We are pleased to end this longstanding litigation between Guidant and Johnson & Johnson, and to continue focusing on delivering innovative products and solutions to physicians and patients," said Tim Pratt, secretary, general counsel, chief administrative officer and executive vice president for Boston Scientific.

To pay for the settlement, Boston Scientific will be making two payments of $300 million each. The company will be using balance sheet cash primarily and will not be taking on long-term debt additionally in the process. Boston Scientific will be dealing with short-term reduced cash availability as a result of the settlement payments but will stay adequately liquid thanks to FCF generation, revolving credit facility and remaining balance sheet cash.

Aside from making settlement payments, Boston Scientific is also expected to record about $600 million in pre-tax charges related to the litigation within the fourth quarter of 2014, which will be considered a recognized subsequent event. This charge will not be included in the company's non-GAAP measures for adjusted income announced previously.

In 2013, Boston Scientific was also involved in a settlement with the government as it paid $30 million to address allegations that Guidant consciously sold defective heart devices used in Medicare patients from 2002 to 2005.

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