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Home » J&J’s non-compete pact with Mahoney drove terms of move to Boston Scientific

J&J’s non-compete pact with Mahoney drove terms of move to Boston Scientific

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Johnson & Johnson
Boston Scientific

The unusual terms of Michael Mahoney’s move from Johnson & Johnson (NYSE:JNJ) to – eventually – the corner office at Boston Scientific Corp. (NYSE:BSX) were driven by J&J’s insistence on enforcing a stringent non-competition agreement, according to the Wall Street Journal.

Mahoney, 46, is slated to take over as president of the Natick, Mass.-based medical device giant Oct. 17, but isn’t expected to take over as CEO until Nov. 1, 2012. Hank Kucheman, executive vice president and group president of the cardiology, rhythm and vascular group, will serve as interim CEO until Mahoney assumes the role next year.

When it announced its new hire last week, Boston Scientific said the transition period will “accommodate Mahoney‘s post-employment obligations to Johnson & Johnson, which both Boston Scientific and Johnson & Johnson have agreed is appropriate.”

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Part of the deal also calls for BSX’s top legal dog, general counsel Timothy Pratt, to personally ensure that Mahoney’s interim duties as president don’t involve any business lines that compete with Johnson & Johnson products, according to the Journal (paid).

That means immediate oversight of BSX’s cardiac rhythm management and endoscopy businesses as well as un-named “corporate functions,” as well as of the neuromodulation business in August 2012. Coronary stents and catheters are off limits until the non-compete clause expires and Mahoney ascends to the top spot at Boston Scientific’s Natick, Mass., headquarters.

The off-limits operations accounted for about 57 percent of BSX’s revenues last year, J.P. Morgan analyst Michael Weinstein told the newspaper, adding that the unusual arrangement “makes for a messy transition.”

“You’re separating the people running the company from the people who are calling the shots, and this company has a big strategic issue – where is its growth going to come from?” Weinstein said.

“This whole scenario is more than a tad unusual,” added Larry Drapkin, co-head of Mitchell, Silberberg & Knupp LLP’s labor and employment department. “Everybody wants to choose a CEO and have him up and running rather than sit on the sideline.”

News of the agreement between the bitter rivals – who’ve long battled over market share in the stents market and went to war over the acquisition of Guidant Corp. in 2006 – ignited speculation that J&J could be interested in acquiring Boston Scientific.

And 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.

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