Guidant believes that Johnson & Johnson is legally bound to complete the acquisition under their agreement signed in December 2004. However, J&J will argue that recent product recalls and related regulatory investigations into Guidant have had a material adverse effect on the company, thereby invalidating their original deal.
In response to the news that it had become subject of a lawsuit from Guidant, J&J said that it “views the previously announced product recalls at Guidant and the related regulatory investigations, claims and other developments as serious matters affecting both Guidant’s short-term results and long-term outlook.”
Guidant, meanwhile, insists that its recent problems are only short-term and that its business fundamentals remained strong. Nevertheless, shares in Guidant dropped almost 6% following the news of the legal action, whilst Johnson & Johnson’s shares also dropped, but by less than 1%.