Sterne Agree On The Boston Scientific-Johnson & Johnson Litigation Settlement: How Much Will It Impact On 4Q14 GAAP Earnings?

Boston Scientific Corporation BSX announced on Tuesday that it has agreed to pay Johnson & Johnson JNJ $600 million to settle a longstanding breach of merger lawsuit over the former's 2005 acquisition of competing company Guidant. Consequently, Johnson & Johnson agreed to dismiss the litigation – permanently- without acknowledgment of liability by Guidant.

The lawsuit goes back to 2006, when Johnson & Johnson asked for more than $7 billion in damages, alleging that Guidant had breached its merger agreement with the pharmaceutical company.

Related Link: JMP Bullish On Boston Scientific: 'Strong Execution and Improved Results in Core Businesses' Will Continue To Drive Growth

In a report published Tuesday, Sterne Agree analysts Gregory P. Chodaczek and Caitlin Howard commented on this event, which they estimate will negatively impact 4Q14 GAAP earnings by ~$0.38. “BSX expects to record a pretax litigation-related charge of approximately $600M within its fourth quarter 2014 results as a recognized subsequent event (…) Although Guidant may have willfully breached confidentiality, we assumed the lawsuit would be settled for a fraction of $7.2B, as it would be difficult to prove J&J suffered substantial financial damages,” the research firm assured.

Sterne Agree maintains a Neutral rating on Boston Scientific Corporation, and expects earnings of $0.86 per share for 2015, and $0.93 per share for 2016. However, the company has been consistently beating estimates for several quarters now.