Buyer's Remorse: Abbott Files Suit To Nix Proposed Alere Merger
By Jof Enriquez,
Follow me on Twitter @jofenriq
Abbott says it has filed a complaint with the Delaware Court of Chancery to end its proposed deal to buy point-of-care (POC) diagnostics company Alere, which Abbott believes has lost "significant value due to numerous damaging business developments" since their $5.8 billion merger agreement was announced in late January.
According to Abbott's officials at that time, the merger would make it the largest provider in the $5.5 billion point-of-care testing segment by expanding Abbott's platforms to include benchtop and rapid strip tests, as well as significantly strengthen its presence in the global diagnostics market.
However, just two months after they announced the agreement, Abbott offered to rescind it after Alere was probed for irregular sales practices and financial statement filings. Alere retaliated by suing Abbott and accusing it of dragging its feet on key antitrust submissions to sabotage the deal. Abbott CEO Miles White told investors in October that Alere needed to first comply with certain regulatory requirements, and he remained guarded on chances that the deal will be completed.
The complaint by Abbott filed this week is the latest chapter in the ongoing spat.
Abbott states in a press release that it based its decision to file suit based on negative developments, including a substantial Alere division’s loss of billing privileges, the permanent recall of an important product platform, multiple new government subpoenas (including two new criminal subpoenas), and a five-month delay in Alere filing its 10K, coupled with admissions of internal control failures requiring refiling its 2013-2015 financial statements.
"Alere is no longer the company Abbott agreed to buy 10 months ago," said Scott Stoffel, Abbott's divisional VP of external communications. "These numerous negative developments are unprecedented and are not isolated incidents brought on by chance."
Abbott blames Alere for not keeping its end of the bargain by failing to cooperate to make the deal work.
"We have attempted to secure details and information to assess these issues for months, and Alere has blocked every attempt. This damage to Alere's business can only be the result of a systemic failure of internal controls, which combined with the lack of transparency, led us to filing this complaint."
Alere released a statement refuting Abbott's reasons for filing a complaint, reports the Chicago Tribune.
"As Abbott well knows, none of the issues it has raised provide it with any grounds to avoid closing the merger," the company said. "Alere will take all actions necessary to protect its shareholders and to compel Abbott to complete the transaction in accordance with its terms."
Abbott CEO White in October did tell analysts that Alere remains a long-term strategic fit for Abbott, despite the turmoil surrounding the proposed merger. Analysts agree, and believe the deal could still push through.
"It is still a good asset for Abbott. One would think that cooler heads should prevail, but we're not in the boardroom," Jefferies analyst Raj Denhoy told Reuters. Mark Massaro, analyst at Canaccord Genuity, added, "this is likely posturing by Abbott to set up a scenario where a price cut could be arranged," and Abbott likely wants to drive Alere's stock lower so the company's shareholders, who meet on Thursday, will agree to a lower price.
As of early afternoon Wednesday, Alere's stock had dropped 7.7 percent to $36.79 a share, and Abbott's stock was down 0.1 percent to $38.32 a share, according to the Tribune.