Dec. 16 (Bloomberg) -- Johnson & Johnson agreed to acquire Guidant Corp. for $25.4 billion, adding electrical devices for treating heart disease to a lineup of thousands of health products ranging from Band-Aids to cardiac stents.

Johnson & Johnson, the world's biggest maker of medical devices, will pay $76 for each share of Guidant, $30.40 in cash and $45.60 in stock, New Brunswick, New Jersey-based Johnson & Johnson said yesterday in an e-mailed statement. The total represents a 10.5 percent premium on defibrillator maker Guidant's share price Dec. 6, the day before the New York Times reported the companies were in talks.

``This gives them a medical device business and, not only that, makes them a big force in that business,'' said Robert G. Millen, who helps manage $3.1 billion for Jensen Portfolio Inc., including Johnson & Johnson shares, in an interview yesterday before the announcement. ``It's a very profitable business, and it's a growth business.''

The transaction will give Johnson & Johnson Chief Executive William Weldon, 56, a piece of the fastest-growing medical technology. He needs new products to bolster revenue growth after losing the top spot in the drug-coated stent market. Demand for pacemakers and implantable defibrillators, which correct irregular heartbeats using electric shocks, may grow more than 24 percent this year to $4.7 billion, analysts estimate.

Indianapolis-based Guidant shares rose $1.05 to $72.05 yesterday in New York Stock Exchange composite trading. The stock had gained 20 percent this year. Johnson & Johnson, the seventh- best performer in the Dow Jones Industrial Average this year with an 18 percent gain, fell 53 cents to $60.90.

Retiring Guidant CEO

Speculation about a takeover of Guidant heightened after Chief Executive Officer Ronald Dollens in May announced plans to retire. Dollens, 57, has been Guidant's only CEO since the company was spun off from Eli Lilly & Co. and incorporated in 1994.

The acquisition would be the fourth-biggest in the U.S. this year, behind JPMorgan Chase & Co.'s $55.1 billion purchase of Bank One Corp., Cingular Wireless LLC's $41 billion acquisition of AT&T Wireless Services Inc. and Sprint Corp.'s agreement to buy Nextel Communications Inc. for $35 billion, announced yesterday.

Guidant would add almost $4 billion to Johnson & Johnson's $41.9 billion in annual sales, helping compensate for declining sales of Johnson & Johnson's Procrit anemia drug. The transaction would be almost twice as large as 117-year-old Johnson & Johnson's previous biggest purchase, the $13 billion acquisition of Alza Corp. in 2001. Most of Johnson & Johnson's 40 acquisitions over the past decade have been for less than $1 billion.

The last major acquisition in medical technology was Zimmer Holdings Inc.'s purchase last year of Swiss-based Centerpulse for $3.2 billion to surpass Johnson & Johnson and Stryker Corp. in the $7 billion-a-year joint-replacement business.

Guidant Name Retained

In yesterday's statement, Johnson & Johnson said both companies' boards cleared the purchase, which is subject to antitrust clearance in the U.S. and the European Union. The transaction must be approved by Guidant shareholders.

Johnson & Johnson said its stent-making Cordis Corp. unit will become part of a new cardiovascular unit that will retain the Guidant name. The combined operation will report to Nicholas J. Valeriani, a member of the Johnson & Johnson Executive Committee.

``The combination of these businesses will enable us to bring innovative new therapies to patients and their physicians in this very important and fast growing therapeutic area,'' Weldon said in the statement. Johnson & Johnson spokesman Marc Monseau declined to comment beyond the news release.

Dollens agreed to stay on as Guidant's chief executive officer until the transaction is closed, the statement said. ``We strongly believe that this exciting collaboration will benefit patients, customers, employees and shareholders,'' he said.

Cash, Debt Positions

At the end of the third quarter, Johnson & Johnson, with 109,000 employees, reported $13.1 billion in cash and short-term investments, 48 percent more than a year earlier. The total was the second-highest among U.S.-based drugmakers, behind Pfizer Inc.'s 18.7 billion, based on Bloomberg data.

Guidant's cash and short-term investments totaled $1.9 billion as of Sept. 30 and its short- and long-term borrowings, $777 million, based on Bloomberg data. Guidant employs 12,000, according to yesterday's release.

Interest in defibrillators has soared in the past three years after studies funded by Guidant and No. 1 producer Medtronic Inc. showed that heart attack survivors and patients with heart failure had a better chance of living with one of the devices.

Implantable defibrillators are small metallic devices that sense irregularities in the heart's rhythm and send a shock when necessary to restore a normal heartbeat. It differs from a pacemaker, which increases a slow heart rate by correcting both fast and slow heart rhythms.

``Defibrillators are the single best growth platform in all of med-tech for the next five to seven years,'' Credit Suisse First Boston analyst Adam Galeon said in a Dec. 7 interview. ``It's an enormous target patient population, 1.2 million in the U.S. alone and it's only around 12-13 percent penetrated.''

Boston Scientific

Guidant dominates the market for bare-metal stents, tubes used to prop open arteries that have been cleared of obstructions. Doctors are switching to more effective drug-coated stents such as Boston Scientific Corp.'s Taxus and Johnson & Johnson's Cypher, which Guidant already helps market. The drug coatings keep tissue growth from reblocking the blood vessels.

Guidant has been helping Johnson & Johnson sell its Cypher product since February. In that time, Boston Scientific has recalled its Taxus product three times and still retained its leading market share.

Johnson & Johnson pioneered the heart stent in 1994 and was the first to sell a drug-coated device in the U.S. with its introduction of the Cypher in 2003. U.S. Cypher sales slid 37 percent to $269 million in the third quarter after Boston Scientific introduced its competing Taxus stent this year.

(Johnson & Johnson and Guidant scheduled a Webcast of a conference call at 9 a.m. New York time, available at http://www.jnj.com or http://www.guidant.com.

To contact the reporters on this story: Dan Lonkevich at dlonkevich@bloomberg.net or Keith Snider at ksnider1@bloomberg.net

Last Updated: December 16, 2004 02:03 EST