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Johnson & Johnson's $7.2 billion claim against Boston Scientific now with U.S. judge

Products made by Johnson & Johnson for sale on a store shelf in Westminster, Colorado April 14, 2009. REUTERS/Rick Wilking
Products made by Johnson & Johnson for sale on a store shelf in Westminster, Colorado April 14, 2009. REUTERS/Rick Wilking

By Joseph Ax

NEW YORK (Reuters) - For more than eight years, Johnson & Johnson (JNJ.N) has pursued billions of dollars in damages against Boston Scientific Corp (BSX.N) after the latter won a controversial – and ultimately ill-fated – bidding war for device maker Guidant.

Now the dispute lies in the hands of a federal judge after lawyers for both companies made final presentations on Wednesday at the close of a non-jury trial in New York federal court.

J&J is seeking more than $7.2 billion in damages and interest from Boston Scientific as Guidant’s successor, an amount that one analyst has characterized as a “major near-term risk” for a company with a market capitalization of about $19 billion as of Wednesday.

U.S. District Judge Richard Sullivan, who oversaw the trial, did not indicate when he would rule.

The dispute stems from 2005, when J&J agreed to buy Guidant for $21.5 billion. Under the deal, Guidant was permitted to consider unsolicited competing bids.

In late 2005, Boston Scientific announced its intention to make an offer, which was contingent on selling some of Guidant’s assets to Abbott Laboratories (ABT.N) to satisfy antitrust concerns.

J&J claims Guidant knowingly violated their contract by providing due diligence directly to Abbott. Without that breach, J&J argues, Abbott would have walked away from the deal, scuttling Boston Scientific's bid and leaving Guidant with no competing offers.

“What made the breach material was that Boston Scientific was not going to make an offer if Abbott was not involved,” said Harold Weinberger, a lawyer for J&J.

David Boies, a lawyer for Boston Scientific, said Guidant relied on the advice of its attorneys in sharing information with Abbott. Boston Scientific eventually acquired Guidant for $27 billion and paid J&J a $705 million termination fee.

The deal has since been widely panned as too expensive, prompting Boston Scientific to argue that J&J dodged a bullet by failing to complete the acquisition and cannot now claim any damages, even if a breach occurred.

“They have not presented any evidence that they would have been better off,” Boies said.

Sullivan pressed both sides during more than two hours of closing arguments. At one point, he questioned why J&J did not aggressively challenge Guidant as soon as they became aware that Abbott had been given information in January 2006, instead of making subsequent higher bids.

“There’s a glaring absence of the sorts of emails and documents you would expect if you thought you had just been hosed on a multibillion-dollar deal,” he said.

Weinberger said J&J was not fully aware of what had occurred until weeks later, after the bidding war ended.

Sullivan also told Boies it seemed likely Guidant shareholders would have had no other option but to accept J&J’s bid absent a formal offer from Boston Scientific.

Boies argued, however, that the deal might still have fallen through, citing dissatisfaction among some shareholders over the price.

The case is Johnson & Johnson v. Guidant Corporation, U.S. District Court for the Southern District of New York, No. 06-7685.

(Reporting by Joseph Ax. Editing by Andre Grenon)