Boston Scientific (NYSE:BSX) got its man, sort of.
Last week, the Natick, Mass.-based maker of stents, defibrillators and other medical devices announced it had wooed away Johnson & Johnson (NYSE:JNJ) executive Michael Mahoney to be its CEO. The huge caveat is that Mahoney won�t be able to assume that role until more than a year from now due to a non-compete agreement.
To use a �pro football analogy, isn�t this sort of like the Indianapolis Colts acquiring quarterback Carson Palmer from the Cincinnati Bengals but agreeing he can only play every third Sunday? After all, like the 0-2 Colts, Boston Scientific appears to need Mahoney�s leadership now, given the company�s myriad challenges, including declining sales, layoffs, product recalls, unit sell-offs, government probes and large patent settlements.
Evidently, the Boston Scientific board thinks half a loaf is better than none. So until the 46-year-old Mahoney ascends to the CEO role in November 2012, he�ll serve as president, starting Oct. 17. �However, he will be prohibited from providing input to any Boston Scientific business that J&J is in today, including stents, as well as catheters for diagnosing and treating abnormal heart rhythms. That amounts to quite a bit that will be out of bounds for Mahoney, considering these businesses accounted for nearly 60% of the company�s sales last year.
“This whole scenario is more than a tad unusual,” Larry Drapkin of the law firm Mitchell, Silberberg & Knupp in Los Angeles, told the Associated Press. “Everybody wants to choose a CEO and have him up and running [immediately] rather than sit on the sideline,” he added.
J.P. Morgan Analyst Michael Weinstein doesn�t like the arrangement either, calling the transition period �messy,� according to AP. He�s not pleased that the Boston Scientific board will be guiding the company�s strategic direction until Mahoney takes over.
“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? And that disconnect doesn’t make” solving that issue any easier,� he said.
Some industry observers think there�s more than meets the eye behind the unusual agreement. Larry Biegelsen, an analyst with Wells Fargo Securities in New York, said in a note to investors that this may be a prelude to J&J making a run at acquiring Boston Scientific, according to Bloomberg.� That speculation was fueled earlier this year when J&J said would stop selling drug-coated stents used to prop open clogged arteries, a market led by Boston Scientific.
Mahoney was certainly considered a rising star at J&J. He was made worldwide chairman of J&J�s medical device and diagnostics group earlier this year. �Previously, he led the company�s DePuy unit, which manufactures orthopedic and neurological devices.
No doubt, Boston Scientific needs some new blood. In the past two years, the company�s shares have declined more than 40% to $6 and change. That�s not much of a surprise given the firm has reported a loss every year since 2006.
Shareholders can only hope that when Mahoney finally takes center stage he brings along a few miracles.
At the time of publication, Barry Cohen owned shares of Johnson & Johnson.
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