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Is Abbott’s Acquisition of Alere Doomed?

Federal investigations of Alere, a class-action complaint brought by its investors, and an accusation that Abbott bullied the company to accept a deal-termination offer may have soured the planned acquisition beyond repair.

Maureen Kingsley

Despite having won the approval of its shareholders last Friday, October 21, Waltham, MA-based Alere Inc.'s pending acquisition by healthcare giant Abbott Laboratories does not appear to be a sure thing. The deal, announced this past February, would have the 128-year-old Abbott paying $5.8 billion for 15-year-old Alere, a company specializing in point-of-care medical tests. But observers say the relationship between the two has since soured--possibly irreversibly.

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A recent Boston Globe story detailing the deal's developments cites court documents that reveal "mutual rancor, mistrust, and uncertainty as to whether the merger will close." For instance, Abbott, after announcing the acquisition, was "blindsided by disclosures that Alere was the subject of U.S. Department of Justice probes into its overseas business practices, its billing of Medicare, and the reliability of a product line," the Globe reported. Consequently, Abbott insisted Alere provide more information about those three federal investigations, and, in April, it even offered Alere tens of millions of dollars to terminate the planned acquisition altogether. Alere rejected that offer.

Also in April, Alere was "stunned" to learn of Abbott's intent to buy Minneapolis-based St. Jude Medical Inc. for $25 billion, "a deal that raised questions about Abbott's capacity to finance both buyouts," according to the Globe.

A few months later, in August, Alere brought a rather juicy lawsuit charging Abbott with covertly planning to sink the merger altogether and threatening to create a "living hell" for Alere executives if they "didn't take the walkaway fee of $30 million to $50 million," according to the lawsuit. Abbott dismissed those allegations as untrue.

Finally, and complicating matters further, a group of Alere investors filed a class-action complaint against Alere in September alleging the firm's senior executives "made misleading statements and omitted key information about its business operations so that [Alere CEO Namal] Nawana and chief financial officer James Hinrichs could receive one-time payments totaling $29 million through the sale of the company," the Globe reported. Alere spokesperson Jackie Lustig said Alere will be moving to dismiss the complaint.

These events all add up to a lot of negativity and mistrust on both sides; however, in various public statements, the two companies seem to be playing nice. For instance, in an Abbott third-quarter-earnings telephone call held last week, Abbott CEO Miles White said vaguely that while the Alere situation "remains to be seen," a "strategic fit is there." White continued, "We like the products. We like the business. We have said that, and I continue to say that. Is the long-term post-merger opportunity and fit there? Yes, it is, and I have never wavered on that."

For its part, Alere announced last week that Chinese officials have cleared the acquisition, with CEO Nawana adding, "We are very pleased by this decision and remain confident that the merger will proceed according to the terms of the agreement."

So, will the deal actually close? It's hard to say, but perhaps the stakes for both companies are too high not to.

Erik Gordon, a professor at the University of Michigan's Ross School of Business, makes the following astute observation in the Globe story: "Both sides have invested a lot in going forward. If the deal doesn't close and you're the seller, you're damaged goods. If the deal doesn't close and you're the buyer, you've damaged your reputation for closing a deal. So there's normally a lot of momentum to get these deals done."ign U

Maureen Kingsley is a contributor to Qmed

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[image courtesy of SIRA ANAMWONG/FREEDIGITALPHOTOS.NET]

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