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What: Shares in Boston Scientific Corporation (NYSE:BSX) are soaring by more than 10% after the company reported that it would pay $600 million to settle a lawsuit that was brought against it by Johnson & Johnson (NYSE:JNJ) in 2006.
So what: In 2006, J&J had announced an agreement to merge with the heart-device company Guidant in a deal that was worth $21 billion; however, Boston Scientific derailed J&J's merger plan with a larger $27 billion bid that was ultimately accepted by Guidant's board.
Despite receiving a $705 million break-up fee from Guidant, J&J filed a $7 billion lawsuit against Boston Scientific alleging that Boston Scientific unjustly interfered with J&J's plans. Specifically, the suit alleges that Guidant inappropriately shared information with Boston Scientific and Abbott Labs that was protected by a confidentiality agreement between Guidant and J&J.
In January, the lawsuit was heard in a Manhattan court and the risk of a guilty verdict and a potential multi-billion payout has kept investors on the sidelines.
Now what: The $600 million settlement is likely a bitter pill to swallow for Boston Scientific given that the company never truly realized the benefits it had hoped to from its Guidant acquisition. Guidant's products were plagued by recalls and lawsuits, and Boston Scientific had already written-off $6.3 billion on its Guidant acquisition. Regardless, the settlement amount is far less than the multibillion dollar worst case scenario feared by investors, and it removes a headwind that was distracting management and investors from Boston Scientific's business. Although I agree that settling this case was wise and that the settlement adds clarity for investors, I'm content to sit on the sidelines on Boston Scientific for a while longer.
Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may or may not have positions in the companies mentioned. The Motley Fool recommends Johnson & Johnson. The Motley Fool owns shares of Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.