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Abbott Tries to Back Out of $5.8B Alere Deal, But Alere Says It’s Still On

Written by: | | Dated: Friday, April 29th, 2016

Abbott Tries to Back Out of $5.8B Alere Deal, But Alere Says It’s Still On


April 29, 2016

By Mark Terry, Breaking News Staff

Yesterday’s announcement that Abbott (ABT) was acquiring St. Jude Medical (STJ) for about $25 million cast doubts on Abbott’s acquisition of Alere (ALR) for $5.8 billion.

Now there are reports that Abbott Laboratories asked to terminate the Alere deal, arguing that it had “serious concerns” about Alere’s financial reporting. Abbott claimed it was worried about Alere’s failure to file an annual report with the U.S. Securities and Exchange Commission (SEC).

In a statement to Bloomberg, Abbott said, “Abbott is awaiting access to the information it has requested from Alere relating to delays in filing its form 10-K and the circumstances surrounding the criminal grand jury subpoena alleging violations of the Foreign Corrupt Practices Act.”

According to a research note to investors yesterday written by Dane Leone, an analyst at BTIG, there was nothing in Alere’s accounting review, which corrects issues back to 2013, or the investigation by the Justice Department, that would constitute a breach of the merger agreement.

In a CNBC interview recently, Abbott’s chief executive officer, Miles White, said, “Alere is working through its issues. It’s not appropriate for me to comment on that while they are working through their issues.”

And in yesterday’s statement regarding the St. Jude acquisition, Abbott indicated it could simultaneously handle both acquisitions.

Alere has received approval from its lenders for an extension for its 2015 annual report, and is working with independent authors on preparing and filing the 10-K with the SEC.

As part of its request for termination, Abbott offered to pay $30 million to $50 million as a termination fee. The concerns about Alere are related to “various representations, warranties and covenants made by Alere in the merger agreement,” according to Reuters. Alere is also being invested over sales practices.

Alere manufactures and markets diagnostic tests for HIV, tuberculosis, malaria and dengue fever. The merger of Alere and Abbott would create a premier point-of-care diagnostics business.

The merger with St. Jude Medical is related to both companies’ strengths in cardiovascular medical devices. Abbott manufactures heart stents. St. Jude is a leader in pacemakers and defibrillators.

“The synergies between the two companies are real and overall the fit between the device portfolios is a good one,” said Michael Weinstein, an analyst with JPMorgan Chase & Co. in New York, in a recent note to investors. “Abbott will look like a very different company going forward, less of an emerging market nutritionals play and more of a diversified device, diagnostics, nutritionals and branded generics company.”

Abbott stock is currently trading for $60.80.

St. Jude Medical stock is trading currently for $76.89.

Alere stock is trading for $39.29. Alere stock is definitely on a downward plunge at the moment. Shares traded on Aug. 13, 2015 for $55.39. It then dropped to $35.47 on Jan. 19, 2016. It rose sharply on Feb. 2 to $53.90.

Part of the original deal between Abbott and Alere was Abbott was paying $56 per share and taking on the company’s $2.6 billion in debt. TheStreet Ratings team gave Alere stock a “hold” and a ratings score of C+, saying, “Alere’s strengths such as its compelling growth in net income, good cash flow from operations and expanding profit margins are countered by the fact that the company has favored debt over equity in the management of its balance sheet.”

Source: BioSpace

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