Advanced Bionics to Stimulate Growth for Boston Scientific

As a rule, when a publicly traded company makes a dilutive acquisition, particularly when it pays a premium, its stock drops upon the announcement. But on June 1 when Boston Scientific Corp. announced that it would acquire Advanced Bionics Corp. (a private company developing neurostimulation devices), shares of the medical device giant went up, albeit just over a point, and numerous Wall Street analysts issued the highest possible "outperform" ratings for the company. Investors had been concerned about how BSC would maintain its growth beyond 2006 after a spectacular success in the drug-eluting stent market this year and next, and how it would invest its $2-3 billion in cash for future growth. Over the past two to three years, Boston Scientific has invested over a billion dollars in over 100 companies. Would it invest an additional $3 billion in 300 companies, investors speculated, or buy a single company for $2 billion, say, one of the large orthopedics companies, such as Zimmer Holdings Inc. ? Investors approved the choice to purchase Advanced Bionics, which offers a wealth of new possibilities in areas in which BSC is already a leader--cardiology, urology, neurology, and gastroenterology--but more than that, also presents completely new and untapped businesses as well.

Boston Scientific is paying $740 million in cash, which, at almost ten times 2004 sales (and almost six times projected...