Alere Inc. may have found a life boat to rescue its sinking merger with Abbott Laboratories. The company's stock surged 3% on Friday based on a judgement from a similar case involving a botched merger between Williams Co. and Energy Transfer Equity (ETE). The judge said Williams and ETE could have easily saved the combination by making a modest amendment.

Amanda Pedersen

Just when Alere Inc. investors seemed to have abandoned all hope of the troubled company's $5.8 billion merger with Abbott Laboratories, a recent judgement on an unrelated, yet similar, case, appears to have buoyed up some investor optimism.

Alere's stock (NYSE: ALR) floated up about 3% last Friday to $39.13. Monday the stock traded as high as $39.27, but then slipped to a closing price of $39.03. Abbott has been trying to escape from its agreement to buy Alere, citing "numerous damaging business developments" that have made Alere a less desirable asset, but Alere has been "clinging like a barnacle," as one analyst put it back in December.

Now, a dissenting opinion in a case involving a botched merger between Williams Co and Energy Transfer Equity (ETE), has given Alere investors reason to be hopeful. In that case, Delaware Supreme Court Chief Justice Leo Stine Jr. dissented with the high court's decision that ETE had the right to nix the deal. The Delaware Chancery Court magistrate in the original ruling, Judge Sam Glasscock, is also overseeing the arbitration between Abbott and Alere.

"Adjusting the manner in which the agreed-upon consideration would pass, by a modest amendment of the merger agreement, would have had no material economic effect on ETE from the terms of the deal it clearly struck," Stine wrote in his March 23 dissent. "The Court of Chancery was right that 'even a desparate man can be an honest winner of the lottery.' But under settled contract law, when, in desperation, you breach your obligation to help a condition come about, you do not get credit for rigging the game."

Abbott's stock (NYSE: ABT) has dropped about 0.25% to $44.70 since the dissenting opinion was issued last week. The company initially agreed to acquire Alere for $56 a share in late January 2016, but Abbott's enthusiasm for Alere didn't last long.

In March 2016, 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 offered to pay Alere between $30 million and $50 million to kill the deal, but Alere's directors declined.

To make matters worse, Alere delayed filing its 2015 annual report until August last year, citing "material weaknesses" in its internal control over financial reporting for 2014 and 2015. Alere also had to delay filing its annual report this year as it tried to sort out an accounting mess at a subsidiary in South Korea.

Amanda Pedersen is Qmed's news editor. Contact her at [email protected].

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