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The Tussle For Guidant


Oh no, you don't. Just when Johnson & Johnson (JNJ) finally had its torturous takeover of Guidant (GDT) settled, Boston Scientific (BSX) spoiled it all on Dec. 5 with a bid for the cardiac-products maker. The $25 billion offer amounts to a gutsy gamble. Guidant is under investigation for a series of recalls of defective defibrillators and other implanted devices, which was why J&J dropped its price to $21.5 billion last month. Boston Scientific execs concede they can only guess at how badly the inquiries will hurt Guidant. By jumping in, management is also granting that its mainstay business -- cardiac stents -- can't grow fast enough to satisfy investors. So if J&J joins the bidding war, Boston Scientific has a powerful incentive to up its offer.

The bid is no doubt causing palpitations at J&J. Boston Scientific's chief rival in stents also needs a new business to perk up its numbers now that drug sales are slowing. But J&J walked away from its original $25.4 billion deal by claiming Guidant was ailing, so it would have a hard time flip-flopping to offer more. Although Guidant's reputation is wounded, the company looks like the big winner.

See "M&A: Back with a Vengeance" (BW-Dec. 6, 2005)

And then there was one? Time Warner (TWX) on Dec. 7 appeared on the verge of eliminating either Microsoft (MSFT) or Google (GOOG) and beginning exclusive talks with the other on a partnership with former ugly duckling AOL. Insiders give the edge to Microsoft, which wants to merge the advertising functions of its MSN unit with AOL's and replace Google as its search engine. Google is exploring a similar deal. The idea of selling a chunk of AOL may have died. "AOL is not for sale," Time Warner CEO Richard Parsons told reporters before a Los Angeles speech on Dec. 6. He says the Net service this year will generate nearly $2 billion in operating income. Take that, Carl Icahn.

See "For AOL, It's Decision Time" (BW-Dec. 7, 2005) Seat owners of the New York Stock Exchange voted on Dec. 6 to become shareholders instead. Some 95% of the 1,307 owners who voted gave a thumbs-up to a deal that will turn the NYSE into a public company and move it away from floor-based to automated trading, which could put "specialists" out of work. It clears the way for the Big Board to acquire Archipelago (AX), the publicly traded Chicago electronic exchange. Arca's stock will be renamed for the NYSE and will hit the market as soon as next month. While floor traders could lose 75% of their action within a year, they're crazy like foxes. They know the Big Board must diversify and automate in order to win the death struggle with NASDAQ and foreign bourses.

See "NYSE-Arca: Think Global, Fight Local" (BW-Dec. 7, 2005) The Supreme Court will take a crack at defining job retaliation by way of a case against Burlington Northern & Santa Fe Railway (BNI). It reassigned track laborer Sheila White to less desirable work, then temporarily suspended her without pay after she complained of sexual harassment by her supervisor. Federal law bars companies from retaliating against workers who raise discrimination claims, but the railroad says that means only "ultimate" actions, like firing or demotion. Some courts agree. Others, including the Sixth Circuit Court of Appeals, which upheld a $43,250 jury award to White, apply a more employee-friendly test. Enter the Supremes. More loud noises from the Detroit auto-body shop: GM (GM) on Dec. 5 startled the industry by announcing that CFO John Devine would turn over the wheel on Jan. 1 to Frederick "Fritz" Henderson. Devine, 61, will stick around for a year as vice-chairman. Henderson, 47, has steered the GM units in Latin America, Asia, and most recently Europe, leaving a highway of closed plants, job cuts, and some tidy turnarounds behind him, so he'd seem to be just the guy to help remodel in North America. Meanwhile, on Dec. 7 the Detroit Free Press said that Ford's (F) makeover plan, to be unveiled in January, will entail more pain than expected: 30,000 jobs and up to 10 plants will go the way of the Edsel. Ford executives declined to comment.

Even though the Japanese economy is awakening from its 10-year hibernation, the yen is swooning. The dollar reached 121.39 yen on Dec. 5, its top level since March of 2003. The Japanese currency also marked record lows vs. the euro. What gives? For one thing, the spread between rates in Japan and the U.S. is the widest in four years. While the Bank of Japan no longer dreads deflation, it has been slow to hike rates from near zero, while the U.S. and European central banks have been tightening. That makes U.S. and euro zone bonds more juicy to investors. But don't expect Tokyo to try and halt the slide. There's nothing Sony (SNE), Toyota (TM), et al love better than a sagging yen, which makes their products cheaper abroad and boosts the value of profits brought home.

See "The Dollar Is Still Defying Gravity" (BW-Dec. 12, 2005) Solid GDP numbers. Terrific productivity growth. Tight labor markets. Real wages must be going up, right? Well, no. Output per hour in the nonfarm business sector rose at a 4.7% pace in the third quarter, the fastest since 2003, according to a government report released on Dec. 6. And 27 states and many of the biggest metro areas, including New York, Los Angeles, Philadelphia, and Dallas, have jobless rates below 5%, spurring reports of labor shortages and some heat under wages. Yet after adjusting for inflation, pay has dropped more than 2% over the past year, with managers and professionals slipping just as much as other workers. It's unclear whether global competition is finally catching up to Americans, but the problem doesn't seem to be going away.

See "Americans, working longer for less" (BW-Dec. 6, 2005) Once upon a time, the White House had grand ideas for tax initiatives this year and next, but those dreams are fizzling in the face of reality on Capitol Hill. As BusinessWeek Online first reported, the Administration signaled in October that it would abandon for now its push to extend low rates on capital gains and dividends, so it's unlikely Congress will act on that this year. The rates were trimmed in 2003 through 2008. White House aides are now hinting that President George W. Bush won't push broad-based reform of the tax code in 2006, even though a handpicked commission suggested such changes in November. The delay would effectively doom reform efforts until a new President is sworn in. But Capitol Hill may give as many as 16 million taxpayers one hotly desired holiday gift -- another year's escape from the saber-toothed Alternative Minimum Tax.

In case there was any doubt, tech titans believe in India. On Dec. 7, Microsoft (MSFT) Chairman Bill Gates laid out plans in New Delhi to invest $1.7 billion in India over the next four years. That followed a Dec. 5 Intel (INTC) statement that it would spend $1 billion in the country over five years, and the October news that Cisco would drop $1.1 billion there over three years. The companies are expanding operations to take advantage of a workforce that is both highly educated and low-cost. In addition, Microsoft is looking to stave off the growing threat of Linux, the open-source operating system that has made giant strides in India. The company plans to create versions of Windows in several of India's many languages.

See "Intel's Eager Passage to India" (BW-Dec. 6, 2005)

Skies can't get much bluer for Airbus and Boeing (BA), at least as far as orders go. The two seem headed for a record year, and Boeing still leads the race, with 800 official sales booked vs. 687 for Airbus as of Nov. 30. But Airbus won preliminary commitments this week to sell 150 aircraft to China, 18 to Germanwings, 9 to Finnair, and 9 to Philippine Air. When contracts are signed for those deals, and for agreements scored earlier by Boeing, the official total will soar past the 1,600 orders booked in 1989. Even better: Qantas and Singapore Airlines have yet to weigh in.

See "The Battle for China's Lucrative Skies" (BW-Dec. 6, 2005)

When you think of yellow pages, you don't exactly think, "Sexy!" But check this: Verizon's (VZ) directory business rang up revenues of $3.6 billion last year -- and profits of nearly $1 billion. That's why, when the telecom behemoth on Dec. 4 said it would take calls about Verizon Information Services, the Street guessed it might draw a passel of suitors and a lavish price of $13 billion to $17 billion. For Verizon, it's all part of the metamorphosis from a low-growth phone company into a zippy purveyor of broadband and wireless.

See "Yellow Fever, Courtesy of Verizon" (BW-Dec. 6, 2005)

Can a love-struck ape bring good things to life for GE on Dec. 14? Already getting heady buzz as -- of all things -- a romance, Peter Jackson's King Kong has to do some monster business for GE's (GE) Universal Pictures to recoup the $207 million it spent to make the film and nearly $50 million to market it, especially with Jackson getting 20% of the gross. Marketers have left no tie-in untied: Kellogg (K) boxes of Apple Jacks and Corn Flakes with Kong. Same for 10 million Nestl? Crunch and Butterfinger bars. A Chase MasterCard. A Kong video game from Ubisoft (again, Jackson gets a big bite). A special King Kong Millions New York State lottery. GE certainly needs the big guy: Ratings at its NBC network have been tanking for two years, Today anchor Katie Couric is considering a jump to the CBS Evening News, and Universal has misfired this year with highly anticipated films like Cinderella Man and Doom. All that could vanish in the mists of Skull Island with a box-office roar from a computer-generated primate.


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