Boston Scientific seen pursuing divestitures

Debra Sherman

CHICAGO, June 22 (Reuters) - Boston Scientific (BSX.N), which ended its alliance with Aspect Medical Systems ASPM.O last week, is likely to sell its remaining stake in Aspect and divest several businesses to pay down debt in the wake of its $27 billion acquisition of Guidant Corp., analysts said on Friday.

They also forecast that Boston Scientific, which recently hired a new chief financial officer, Sam Leno, is poised to announce big job cuts in the second half of this year as sales in its key stent business wane.

"I think (Leno) accelerates the whole process. He is focused on operating margins, which are very depressed right now," said Jeff Jonas, a portfolio manager at Gamco Medical Opportunities Fund.

Jonas, whose fund does not own Boston Scientific shares, forecast the company will soon unload its remaining Aspect shares and its roughly 15 percent stake in Cyberonics Inc. (CYBX.O).

"Every little bit helps ... but the big one will be a possible spin-off of its Endosurgery business," he said.

A initial public offering of the Endosurgery business could raise $800 million to $1 billion, depending upon the structure of the deal, Jonas said.

Boston Scientific has said it is evaluating an IPO of the business.

A Boston Scientific spokesman said the company was not yet prepared to discuss other actions it may take.

JP Morgan analyst Michael Weinstein said he expects an IPO plan to win board approval, resulting in a spin-off late this year or in early 2008.

Weinstein also predicted Boston Scientific will seek buyers for several of businesses it acquired in recent years.

Those include the Meadox vascular graft business, which booked 2006 sales of around $100 million; Guidant's cardiac surgery business, which recorded 2006 sales of $200 million; the Namic fluid-management business, which recorded 2006 sales of $80 million' and the EP Technologies Cardiac Pathways catheter ablation business, with 2006 sales of $140 million.

"Collectively, these businesses generate just over $500 million in sales and could fetch $1 billion or more from a combination of strategic buyers and private equity," Weinstein wrote in a recent research note.

"Their sale would accelerate the paydown of the company's $8.9 billion in debt, not to mention the funding of earn-outs and milestone payments from past deals and the potential liability from Guidant's ICD and pacemaker-related recalls of 2005-2006," he added.

Boston Scientific said on Friday that it had purchased technology for treating an enlarged prostate from Celsion Corp. CLN.A for an undisclosed sum.

"Whatever the price, it's not enough to move the needle. I wouldn't say it's significant," said Jonas.

David Katz, chief investment officer at Matrix Asset Advisors, said he remained confident that the company, whose shares have been steadily declining for the past three years, will work through its problems. "Management is very focused on maximizing the franchise in the intermediate term. They are very focused on strengthening the balance sheet sooner rather than later and they are very focused on right-sizing the infrastructure," said Katz, whose fund owned 2.25 million Boston Scientific shares as of March 31.

"Insiders own 20-plus percent of the company, so they are highly focused and highly motivated," Katz added.

((Editing by John Wallace; Reuters Messaging: debra.sherman.reuters.com@reuters.net; debra. sherman@reuters.com, 1-312-408-8134)) Keywords: BOSTONSCIENTIFIC DIVESTITURES/

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