(Corrects paragraph 17 to show Elliot will receive a signing bonus of $1.5 million and annual salary of $1.2 million)
* Move reunites former CEO and CFO of Zimmer
* Boston Scientific shares rise to eight-month high (Adds compensation, analysts’ comments, updates shares)
By Debra Sherman
CHICAGO, June 25 (Reuters) - Boston Scientific Corp (BSX.N) said its CEO is retiring and will be succeeded by Ray Elliott, former head of Zimmer Holdings ZMH.N, the world’s largest maker of orthopedic devices, sending Boston Scientific shares up nearly 9 percent.
Elliott takes the reins of the cardiovascular device maker on July 13 as the company fends off competition in the market for heart stents and tries to rebound from recalls in its defibrillator and pacemaker business.
He succeeds James Tobin, whose 10 years at the helm of Boston Scientific was marked by the $27 billion takeover of Guidant Corp in 2006 — an acquisition Fortune magazine called the second worst deal ever — and the subsequent sharp decline in the company’s shares.
Elliott, 59, joined Boston Scientific’s board in 2007 but did not stand for reelection in March. He will now rejoin the board and also assume the title of president.
The move will reunite Elliott with Sam Leno, Boston Scientific’s chief financial officer, who served under Elliott at Zimmer as CFO.
Jeff Jonas, an analyst at Gabelli & Co, called the move a “big positive,” praising the performance of Elliott and Leno while at Zimmer.
The executives “did a great job building Zimmer: marketing the products, developing new ones and raising margins — squeezing profitability out of the business,” Jonas said.
“I think they can do a great job defending market share on the stent side and then rebuilding the CRM business.” CRM refers to the cardiac rhythm management business, which includes defibrillators and pacemakers.
While at Zimmer, Elliott oversaw the company’s initial public offering in 2001. Today, Boston Scientific’s market capitalization stands at $15 billion, while Zimmer’s is $9 billion.
“For those of you who know me, you know I’m fanatical about sales and cash flow,” Elliott told analysts on a conference call.
He said the sales outlook for Boston Scientific over the next couple of years was modest but did not elaborate on his goals for accelerating sales growth.
While CRM is the growth engine because of the Guidant acquisition, there are other businesses that have potential, such as urology and gynecology, that can drive diversification, Elliott said.
“Jim is leaving a company that has stabilized and is headed in the right direction. He’s handing it off at a point when the focus can be on growth, not just stabilization,” said Aaron Vaughn, senior equity analyst at Edward Jones. “Ray is a salesman through and through.”
Wachovia analyst Larry Biegelsen wrote in a research report that he was not concerned by Elliott’s lack of strong experience in the cardiovascular area, where Boston Scientific derives the majority of its sales.
“Ray Elliott has a reputation as a strong executor who wrings costs out of the system. He increased sales at Zimmer fourfold during his 10-year tenure as CEO ... and he increased the market capitalization ... We would expect Elliott to apply the same focus on sales growth, cost containment and cash flow at Boston Scientific as he did at Zimmer,” he wrote.
“However, Zimmer’s growth, margins and share price have suffered since Elliott departed in 2007, and investors place some of the blame on Elliott because they believe he did not invest in the business at an appropriate level,” he added.
Elliott — who will collect a signing bonus of $1.5 million, an annual salary of $1.2 million, incentives of up to 120 percent of his base salary, plus stock options — told analysts there would be “no massive changes” at Boston Scientific or in its senior management over the short term.
CFO Leno, 63, added, “I do have a number of good years in me ... I can probably outlast most people.”
In a statement released by the company, Tobin said it was “an appropriate time” to step down, noting his 10-year anniversary as chief executive and that he would turn 65 in two months.
The board began its executive search — both internally and externally — last November.
“I wanted a short period of being a lame duck. Three weeks is about right from my point of view. This place is like a video game. There’s something happening every day,” Tobin said, adding that health was not a factor.
Tobin’s legacy will be tied to the acquisition of Guidant, which subsequently was beset by product recalls and racked up huge amounts of debt for Boston Scientific.
After trading well above $40 in 2004, the company’s shares had been lingering below $10 for most of the last eight months.
“They completely overpaid for (Guidant) and underestimated the depth of the problems there,” Gabelli’s Jonas said. But he gave Tobin credit for turning around Guidant.
Asked if he planned to be with Boston Scientific long term, Elliott said, “There’s always lots to do. If you stayed until everything was done, you’d never leave.”
Boston Scientific shares were up 83 cents, or 8.73 percent, to $10.34 in afternoon New York Stock Exchange trade. (Reporting by Debra Sherman and Lewis Krauskopf in New York; Editing by Derek Caney and John Wallace)