in the “less invasive medical device market.” It was also highly profitable. The company posted earnings of $1.6 billion on revenue of $5.6 billion in 2005.
In early 2006, the Boston Scientific board and executives implemented a strategy. If it bought another company within its industry, it would increase its size and margins tremendously. Boston Scientific paid $27.2 billion in cash and stock for Guidant, outbidding Johnson & Johnson. The buyout increased the Boston Scientific debt eight-fold to $6 billion. To compound the problems with the buyout, Guidant products began to have quality-related problems, which made the acquisition even more troublesome. Boston Scientific also hit some bumps as government studies questioned the the effectiveness of its own products. Guidant became a tremendous burden less than two years after the transaction. As Morningstar pointed out at the time, “Lingering quality problems and more product recalls from the acquisition of Guidant could amount to more bumpiness through 2008.”
From 2006 to 2008, Boston Scientific posted total losses of $4.5 billion. The combined company also showed no growth in revenue or meaningful expense savings. Boston Scientific has taken a large, successful business and in a bid to become the single dominant corporation in the medical device industry it ruined its own balance sheet and bought a firm with significant product problems.
Boston Scientific shares were above $25 before the Guidant deal. They now change hands for well under $7.
(AP Photo/Steven Senne)