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Abbott Moves to Ax Alere Deal
Public at:2016-12-12 10:11:00

Posted in Medical Device Business by Nancy Crotti on December 7, 2016

Medtech giant Abbott Laboratories has made it official: It wants out of its nearly $6 billion bid for diagnostics company Alere Inc.

Nancy Crotti

Illinois-based Abbott, which sued Alere last month in Delaware Chancery Court for breach of contract, has filed an additional complaint seeking to terminate the $5.8 billion deal. In a statement, Abbott cited “numerous negative developments (that) are unprecedented and are not isolated incidents brought on by chance.

“We have attempted to secure details and information to assess these issues for months and Alere has blocked every attempt,” Abbott spokesman Scott Stoffel said in the statement. “This damage to Alere's business can only be the result of a systematic failure of internal controls which, combined with the lack of transparency, led us to file this complaint."

Sales of Alere shares were halted before the Abbott announcement, according to a report by Bloomberg. Earlier, they were down less than 1% to $39.70. Abbott’s decreased by 1% to $38.05 shortly before 12:30 p.m. in New York.

Analysts were unsurprised by Abbott’s latest effort to kill the deal, to which Alere is “clinging like a barnacle,” Debbie Wang of Morningstar said in an email.

“It’s not clear that the underlying business at Alere is materially different from what it was in January when Abbott announced the deal,” Wang said. “Abbott has little to lose in delaying the close and putting up new hurdles for Alere to cross in order to make progress toward closing the deal.”

Alere called Abbott’s latest lawsuit “entirely without merit.”

“As Abbott well knows, none of the issues it has raised provides it with any grounds to avoid closing the merger,” the Waltham, MA, company said in a statement. “Alere has fully complied with its contractual obligations under the merger agreement and is highly confident that the merger will be completed in accordance with the terms set forth in the merger agreement. Alere will take all actions necessary to protect its shareholders and to compel Abbott to complete the transaction in accordance with its terms.”

Alere makes diagnostics for a variety of infectious diseases, including HIV, dengue fever, tuberculosis, and malaria. The company has had a rough year. In addition to its merger woes, Alere withdrew a testing system for patients who take blood thinners in July, after reports of inaccurate results. One patient died and others were hospitalized. CMS revoked its diabetes testing supply business’ enrollment Medicare in November, after Alere allegedly submitted claims for 211 dead people.

Abbott announced its plans to acquire Alere in January for $56 per share. Shortly thereafter, Alere revealed that it had received a grand jury subpoena from the U.S. Department of Justice related to its sales practices for 2013 through 2015 in Asia, Africa, and Latin America, and to matters related to the U.S. Foreign Corrupt Practices Act. A few weeks later, Abbott publicly offered $30 million to $50 million offer to withdraw from the deal. Alere’s directors declined.

Alere also delayed filing its 2015 annual report until August, when it cited “material weaknesses” in its internal control over financial reporting for 2014 and 2015. Alere also sued Abbott in Delaware that month, seeking to compel Abbott to complete the merger and claiming that Abbott used some tough-guy tactics to try to get out of it.

Abbott’s latest move should not affect its share price, according to financial services company Stifel, which said court filings are likely to be unsealed within days and a trial date announced in the next two weeks.

“While difficult to predict, the company believes a resolution to this ongoing litigation is likely to occur on or before the originally anticipated April ‘cut-off’ date for ALR close,” Stifel’s statement said.

Analysts were much more interested in Abbott’s $25 billion purchase of St. Jude Medical, which Abbott expects to complete this month. Abbott is not required to pay Alere a break-up fee, according to the merger agreement. Alere would have to pay Abbott $177 million, under specified circumstances.

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