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This Guidant defibrillator treats congestive heart failure. (Photo courtesy of Guidant Corp.)

Johnson & Johnson sweetened its offer to buy medical device maker Guidant Corp., whose cardiac rhythm management unit is based in Arden Hills, and Guidant has accepted. There has been some seesawing back and forth between the companies over the potential acquisition. Johnson & Johnson has offered three different prices for Guidant, and the latest is still less than a competing bid from Boston Scientific. But Indianapolis-based Guidant says it's going with Johnson & Johnson anyway.

St. Paul, Minn. — Guidant employs more than 3,000 people in Minnesota, which is home to the division that makes pacemakers and defibrillators, which treat irregularly beating hearts.

In December of 2004, Johnson & Johnson offered to buy Guidant for about $25 billion, but after Guidant issued a sequence of product warnings and recalls, J & J lowered its offer by about $4 billion. In the meantime, Boston Scientific came in with a bid of $25 billion for Guidant.

Johnson & Johnson still isn't even matching Boston Scientific's proposal, but it's now offering to exceed its own last bid. Under the current deal Johnson & Johnson would acquire Guidant for more than $23 billion in cash and stock. The boards of both Guidant and Johnson & Johnson have approved the purchase.

Officials with Guidant and Boston Scientific couldn't be reached for comment, and Johnson and Johnson declined an interview for this story.

Guidant's move to go with Johnson & Johnson in spite of the company's failure to match a higher offer appears to be a strong statement on the behalf of Guidant's board about the two companies' compatability. That's according to David Heupel, a portfolio manager with Thrivent Asset Management, who focuses on the health care sector. He says compared to Boston Scientific, Johnson and Johnson, which is the world's biggest maker of medical devices, has more to offer.

"They have a bigger sales infrastructure, bigger marketing suppport, and they also have a very good reputation [with] physicians," says Heupel. "That can help particularly with Guidant's problem with defibrillators and the problems that have plagued the company as of late."

Since June, Indianapolis-based Guidant has recalled or issued safety warnings affecting about 88,000 defibrillators and almost 200,000 pacemakers.

Those problems led Johnson & Johnson to lower its initial bid. Heupel says the second, lower offer showed Johnson & Johnson viewed Guidant as damaged goods, so the company's third offer couldn't go dramatically higher.

That being said, Heupel says he doesn't think Johnson & Johnson's latest offer ends the issue of who will acquire Guidant, because it may not satisfy Guidant's shareholders.

"I think people were hoping they would put a number up that was at least on par if not even higher than what Boston Scientific offered," says Heupel. "That's not the case, and it's not an all cash deal, so there's still a component of investor sentiment that can play a role in how and which company will be viewed as the favored acquirer of Guidant."

Heupel says he imagines Boston Scientific will make aggressive moves to pursue this further. The company has indicated it will seek talks with Guidant over the matter.

But Heupel says regardless of whether Johnson & Johnson or Boston Scientific prevails, he thinks it won't make too much difference for Guidant's Minnesota operations. Heupel says in either case, the facility and personnel would likely stay here.