(Reuters) — Boston Scientific (NYSE:BSX) should pay Johnson & Johnson (NYSE:JNJ) $7.23 billion in damages and interest for breach of contract, nearly 9 years after Boston Scientific won a controversial bidding war for device maker Guidant, lawyers for J&J told a U.S. federal judge today.
"To be blunt about it, Guidant cheated – and then it lied to Johnson & Johnson so Johnson & Johnson would not discover what Guidant had done," attorney Harold Weinberger said at the start of a non-jury trial in Manhattan federal court.
But lawyers for Boston Scientific, which acquired Guidant in early 2006 for $27 billion and assumed its potential liability, said Guidant did nothing wrong and had relied on the advice of its attorneys.
"They did not believe they were acting improperly," said lawyer William Ohlemeyer.
The trial is expected to continue into December.
After weeks of competing offers that drove the price well above J&J’s original $21 billion deal, Boston Scientific ultimately acquired Guidant.
Under the J&J agreement, Guidant could consider unsolicited takeover bids like the 1 Boston Scientific announced in late 2005, which included a plan to sell some of Guidant’s assets to Abbott Laboratories out of antitrust concerns.
But J&J claims Guidant violated the contract by providing due diligence directly to Abbott, enabling Boston Scientific to remain in the game as the bidding war intensified.
Without that breach, J&J says, it could have acquired Guidant for much less. The damages and interest it is seeking amount to approximately 40% of Boston Scientific’s market capitalization.
Boston Scientific has noted that the Guidant deal is widely seen as a disaster, suggesting that J&J was fortunate to have lost out.
J&J’s first witness was its former CEO Bill Weldon, who said J&J’s superior resources could have helped repair Guidant’s value after a series of recalls.
Judge Richard Sullivan, who will determine whether Boston Scientific owes J&J damages, concluded Weldon’s testimony with a bit of levity.
"Did you have any involvement in running the Jets?" he asked, in reference to longtime New York Jets owner Woody Johnson, the scion of the family that founded J&J.
"Can he take the 5th on that?" responded Weinberger, J&J’s attorney.