Abbott + Alere + St. Jude (+Thoratec) = One Messy Deal?

Abbott wanted to bow out of acquiring Alere for $5.8 billion, but now it has to digest that company plus St. Jude Medical for another $25 billion. The integration won't be pretty.

May 2, 2016

3 Min Read
Abbott + Alere + St. Jude (+Thoratec) = One Messy Deal?

Abbott wanted to bow out of acquiring Alere for $5.8 billion, but now it has to digest that company plus St. Jude Medical for another $25 billion. The integration won't be pretty.

Arundhati Parmar

When I interviewed Stryker's CEO Kevin Lobo earlier this year slightly berating him for not doing bold deals lately -- unlike the Mako Surgical acquisition -- he warned against big "messy integrations."

While acknowledging that those deals are not neccesarily bad, he noted that it's wise not to do two messy integrations at once. Lobo described messy integrations to be those where products, sales and surgeons (i.e. customers) overlap.

The current, very public predicatment that Abbott Laboratories finds itself in with its earlier intent to buy diagnostics maker Alere and its recently announced deal to buy St. Jude Medical may not be messy in the way Lobo defines it. But perhaps calling it a messy deal itself may be an understatement. 

So what is the drama?

In February, Abbot Labs announced that it would gobble up point-of-care giant Alere for $5.8 billion. Waltham, MA-based Alere sells tests and instruments for a number of applications across cardiometabolic, toxicology, infectious diseases, oncology, women's health, and clinical immunology categories. Its Alere i Influenza A & B test offers quick diagnosis of molecular flu in under 15 minutes.

In a conference call with analysts at the time, Abbott executives sang praises of Alere.

"We think that this is just a great business with a fantastic set of products that's going to be very complementary to our own point-of-care business and something that we're going to be able to leverage broadly in the marketplace for some great growth," said Brian Blaser, executive vice president of diagnostics products.

Fast forward to April 28 when Alere revealed that Abbott wanted to pay the company $35 - $50 million to back out of the acquisition citing the accuracy of various representations, warranties and covenants Alere made in their merger agreement.  The concerns relate to the delay in Alere's filing a 2015 regualtory report regarding its financial performance and governmental investigations that Alere previously disclosed.

But Alere would have none of it and the company's board rejected that termination request. Meanwhile, that same day -- April 28 -- Abbott announced that it would buy Minnesota medical device maker St. Jude Medical for $25 billion, and have financing to be able to complete both deals.

Analysts hailed the St. Jude deal noting that there is virtually no product overlap with Abbott noting that it gives the latter deeper exposure to  hospitals' cardiovascular department.

But there are concerns out there when it comes to integration.

"If both deals were to go forward, those are two very significant bites and two very significant integration efforts," said Bob Lavoie, managing director and partner, at L.E.K. Consulting, in a phone interview Thursday. "So that would be something to watch whether Abbott can maintain their market and commercial focus in the face of two very significant integrations."

In a conference call with analysts that same day, Abbott CEO Miles White declared that "our financing plan contemplates broadly completion of both transactions, the capacity to do that ..." 

Not exactly a ringing endorsement of Alere, but then White declared that the two deals were independent events.

Given how Abbott wanted to bow out of buying Alere, one can only imagine the churn as it attempts to integrate that diagnostics player into its fold. And the integration story doesn't end there.

"The integration of St. Jude is of two companies," said Kenneth Graves, managing director at L.E.K. Consulting, in a phone interview last week. "You have Thoratec that St. Jude acquired last year, and they are still in process of integrating the two companies, and so with Abbott acquiring St. Jude there'll be a degree of integration in essence of two companies and not one."

[Photo Credit: user NicolasMe]

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