Is J&J in the hunt for Boston Scientific?

Could the amicable deal between bitter rivals Johnson & Johnson (NYSE:JNJ) and Boston Scientific (NYSE:BSX) over Michael Mahoney leaving J&J to helm BSX signal an upcoming acquisition?

Opinions are divided on Wall Street, with at least one analyst wondering if a deal could be in the works and others casting doubt on the speculation.

In a late-breaking announcement Sept. 13, Boston Scientific said Mahoney will become president effective Oct. 17 and take the corner office in November 2012. The unusual transition period allows Mahoney to learn the business and also helps side-step any anti-competition covenants in his contract with J&J. The news came as a surprise given the duo’s long-standing battles over the drug-eluting coronary stent market, which Johnson & Johnson pioneered – only to see BSX emerge with the leading market share.

Sign up to get our free newsletters delivered right to your inbox

The amity might indicate that J&J is ultimately interested in buying its smaller peer, according to Wells Fargo analyst Larry Biegelsen. The "friendly agreement" that’s sending Mahoney to BSX’s Natick, Mass. HQ could "fuel additional speculation" that a merger is afoot, Biegelsen wrote in a note to investors yesterday.

Other analysts on The Street were not so sure.

"An interesting theory but sounds like pure speculation," Sanford Bernstein analyst Derrick Sung told the Wall Street Journal, adding that Mahoney got the job for his willingness to continue the turnaround plan put in place by the man he’s succeeding, Ray Elliott.

“The last thing you want is a new CEO coming in who says, ‘I’m the new CEO, I’m going to blow up this plan,'” Elliott told analysts yesterday at the Morgan Stanley Global Health Conference in New York. "Mike was essentially, from very early in the game, almost a perfect match – and that’s culturally, too."

Another un-named analyst told the Journal that J&J isn’t interested in acquiring Boston Scientific and that Mahoney is leaving Johnson & Johnson on less-than-friendly terms.

But if J&J isn’t interested in Boston Scientific, it is interested in broadening its portfolio of cardiac devices to include heart pumps and heart valves, according to CFO Dominic Caruso.

“Both [technologies] are interesting. We are interested in looking at them,” Caruso said at the conference Sept. 13. “Unfortunately they are overvalued today.”

That could make targets of heart pump makers Abiomed Inc. (NSDQ:ABMD), HeartWare International (NSDQ:HTWR), Thoratec Corp. (NSDQ:THOR) and World Heart Corp. (NSDQ:WHRT) on the cardiac assist device side. Here’s a look at how each company shapes up in terms of price/earnings ratio:

Company	Price	EPS	P/E
Abiomed	$11.23	-$0.28	-40
HeartWare	$55.73	-$2.48	-22
Thoratec	$31.40	$1.07	29
World Heart	$0.43	-$0.32	-1.34

By this measure, J&J would have to put some of its slaes muscle behind Abiomed, Thoratec is an expensive purchase for J&J (by way of comparison, the Dow Jones medical device index has a P/E ratio of 3.2), which is making price one of its top considerations, according to finance chief Caruso. But with their earnings under water, J&J would have to spend on R&D and put its sales and marketing muscle behind the heart pumps made by the other three firms.

And J&J’s penchant for low pricing could make a deal for Edwards Lifesciences (NSDQ:EW) less palatable too, even though the heart valve pioneer is leading the race to bring the first catheter-delivered replacement aortic valve to the U.S. market. Here’s a look at the P/E ratios of Edwards and other heart valve makers:

Company	Price	EPS	P/E
Abbott	$51.05	$3.28	16
Edwards	$76.25	$1.96	39
Medtronic	$34.20	$2.87	12
St. Jude Medical	$43.43	$2.68	16

Another name to put into the heart valve mix is privately owned On-X Life Technologies, which won 510(k) clearance in January for a version of its ascending aortic prosthesis valve.