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Wednesday, January 04, 2006

Ind. Law - Guidant sued over J&J merger offer

"Guidant sued over J&J merger offer" is the headline to an interesting story by Jeff Swiatek in the Business Section of today's Indianapolis Star. Some quotes:

Guidant Corp. executives and directors are putting their own interests ahead of shareholder interests if they continue to recommend the less lucrative of two takeover offers, according to a lawyer who is suing Guidant officers.

Some shareholders want a federal judge to rule on whether Johnson & Johnson, which is offering $21.5 billion for the Indianapolis company, can rightfully give Guidant directors and top executives legal protections from a mounting wave of lawsuits and investigations over product problems.

The legal protections pledged by Johnson & Johnson could be worth millions of dollars to Guidant's officers and might pose a conflict of interest as they consider a competing offer from Boston Scientific Corp., the shareholders argued in a motion to Judge Sarah Evans Barker. * * *

Last week, Guidant's board unanimously recommended that shareholders approve the J&J offer and set a shareholder vote for 10 a.m. Jan. 31 at its Downtown Indianapolis headquarters. * * *

Guidant said its board has determined that a merger with J&J "is in the best interest of Guidant and its shareholders," according to a letter to shareholders from Chairman and Chief Executive Officer James Cornelius that was included in a filing with the Securities and Exchange Commission.

But San Diego attorney Darren J. Robbins, who represents the Alaska Electrical Pension Fund and several other shareholders, takes issue with that, pointing to J&J's legal protections. The protections "are provided as inducements to these directors. You can imagine it was at the front of their minds" as Guidant's board negotiated the deal with Johnson & Johnson, Robbins said.

"No wonder they were willing to sacrifice shareholders' interest" in approving the deal, Robbins said Tuesday. Robbins has asked Barker to hold up the merger to weigh the legality of the legal protections and other parts of the deal.

Under the merger agreement with Johnson & Johnson, Guidant executives and directors would receive "complete indemnification . . . for all their prior misconduct," plus six years of insurance liability coverage for directors and officers, Robbins said.

Barker said in a ruling last week that she wants to wait for "further developments" in the merger process before deciding on the shareholders' motion. Robbins said he wants the judge to act before the shareholder vote on the J&J offer.

A sidebar to the story sets out the three provisions the motion urges Judge Barker to strike down:
• A promise by Johnson & Johnson to give Guidant's board and top executives legal protections against lawsuits and six years of liability insurance coverage.

• A $625 million termination fee Guidant must pay if it walks away from the deal.

• A "no-talk/no-shop" clause that prevents Guidant from soliciting competing merger bids.

Posted by Marcia Oddi on January 4, 2006 07:37 AM
Posted to General Law Related | Ind Fed D.Ct. Decisions