J&J; Weighing Guidant Acquisition

Johnson & Johnson, the world’s biggest maker of medical devices, may buy defibrillator maker Guidant Corp. for $24 billion, people familiar with the situation said Tuesday.

Shares of Guidant jumped 5.2% and Johnson & Johnson fell 2.3% after the New York Times reported the companies were in talks, citing unnamed company executives. The two haven’t agreed whether a purchase of Guidant, the No. 2 maker of implantable defibrillators, would be with cash, stock or a combination, said the people, who declined to be named.

Johnson & Johnson Chief Executive William Weldon needs new products to bolster revenue growth because the company has lost its top spot in the drug-coated stent market and sales of its Procrit anemia drug are falling.

The market for pacemakers and implantable defibrillators, which correct irregular heartbeats using electric shocks, may grow more than 24% this year to $4.7 billion, analysts estimate.

“It would be a great relief to see them do a merger or acquisition like this. It puts them in some really growing markets,” said Susan Cross, an analyst at Wilmington, Del.-based Wilmington Trust. “Procrit is one of the areas people are really whining about.”

Guidant spokesman Steve Tragash declined to comment. Jeff Leebaw, a spokesman for New Brunswick, N.J.-based Johnson & Johnson, said the company didn’t comment on speculation. The companies may announce a deal within a week if they can agree on terms, the people said.

Guidant, based in Indianapolis, dominates the market for bare-metal stents, tubes used to prop open arteries that have been cleared during a procedure known as an angioplasty. 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.

Shares of Guidant rose $3.60 to $72.35. Johnson & Johnson shares fell $1.42 to $60.41. Both trade on the New York Stock Exchange.

The proposed purchase price would be a 9.6% premium to Guidant’s market value Monday and is almost seven times Guidant’s 2003 sales of $3.7 billion. The acquisition would be the third-biggest in the U.S. this year and the largest ever for Johnson & Johnson, which has made more than 40 purchases over the last decade to build a product lineup that includes artificial hips and drugs.

A combined Johnson & Johnson and Guidant could save about $509 million a year, based on overlapping businesses and other cost cutting, Credit Suisse First Boston analyst Adam Galeon said.