Abbott Tries to Bail Out of $5.8 Billion Deal as Alere Faces Bribery Probes, But it Won't Be Easy

June 2, 2016
By Alex Keown, BioSpace.com Breaking News Staff

Abbott Park, Ill. – Abbott Laboratories sought a way out of its $5.8 billion deal to acquire Alere Inc. in the wake of a bribery probe into that company’s sales practices in Africa, Asia and Latin America, Bloomberg reported this morning.

Abbott and Alere initially struck the deal in February, but then in March learned about the probe from a U.S. Grand Jury into Alere’s sales practices. Since news of the investigation first broke, Alere’s stock has seen a steady decline from the heights to which it jumped after Abbot announced its intentions to buy the company. Shares of Alere were trading at $53.90 in January after the acquisition was announced, but has slipped to this morning’s price of $42.78 per share. Bloomberg noted that Alere’s stock has dipped in part due to investors’ concerns about the deal going through.

Despite concerns over the bribery allegations, attorneys familiar with the U.S. Foreign Corrupt Practices Act said investigations into possible violations may not be grounds for a company to terminate an acquisition agreement. Danforth Newcomb, an FCPA attorney at Sherman & Sterling LLP, told Bloomberg that it’s common for corruption issues to arise during M&A transactions. Newcomb said those issues generally result in “a two-sided investigation by the company to be acquired and the acquirer. The transaction usually closes after some delay and added cost.”

In April, Debbie Wang, an analyst with MorningStar, told QMed that Abbott could use Alere’s troubles to back out of the deal.

“We have not been enthusiastic fans of Alere’s point-of-care business and we continue to think it is vulnerable to competitive technology that could leapfrog Alere’s offerings, while at the same time switching costs are negligible,” Wang said in an email to QMed.

Last month Miles White, Abbot’s chief executive officer, remained mum on the deal during a conference call with investors, giving rise to his intentions regarding the Alere acquisition. In addition to the investigation into Alere’s overseas sales practices, Alere was forced to delay its annual 10-K filing due to the reanalyzing of revenue cutoff, in Africa and China for 2013, 2014 and 2015. Alere 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.

The investigation into Alere could take several years and there is not telling if charges will eventually be levelled at Alere, or dropped altogether. If charges are levelled at Alere, they could damage the company’s value, making it less of a good investment for Abbott. Once again though, that might not be enough of a deal-breaker. Jonathan Palmer, an analyst with Bloomberg Intelligence in New York, told Bloomberg that it appears as if Abbott wants to back out of the deal, but added that once there is a signed agreement, they typically go through.

In February, Abbott struck the deal with Alere to allow the company to “provide new, flexible, cost-effective, high-quality products to help health systems meet growing demand in both in-patient and out-patient settings.” The company said Alere’s portfolio of products will provide the company entry into new outlets, including doctors' offices, clinics, pharmacies and at-home testing. Abbott said its combination with Alere will offer the broadest point of care menu of infectious disease, molecular, cardiometabolic and toxicology testing, expanding Abbott's platforms to include benchtop and rapid strip tests.

In 2015, White said he was interested in pursuing a deal in the medical device arena. In his 13 years helming Abbott, White has been behind several big deals, including the 2006 acquisition of Guidant's coronary stent business for $4.5 billion and the $6.9 billion purchase of Knoll Pharmaceuticals in 2001. In April, Abbott pulled the trigger on a $25 billion deal to acquire St. Jude, something the company had toyed with in the past. That deal raised questions as to whether or not Abbott intended to go through its Alere deal but White said Abbott had the resources to handle both acquisitions.