Abbott Moves to Terminate Alere Acquisition

Abbott’s move to acquire Alere is on the rocks. The $5.8 billion deal, announced in February, would have made Abbott the leader in the point-of-care diagnostics field, with about $7 billion in annual sales.

But the Illinois-based Abbott recently moved to terminate the deal, offering the Massachusetts-based Alere some $30 to $50 million to opt out. Alere said in a statement it has rejected the offer and wants to consummate the sale

Abbott’s at-the-altar second thoughts stem in part from Alere’s March disclosure that it had been subpoenaed by the Justice Department in relation to how it conducts business in overseas markets such as Africa, Asia and Latin America. Alere then announced it was delaying filing its 10-K annual statement for the 2015 calendar year—earnings it was to have released in late February.

“Abbott informed Alere that it has serious concerns about, among other things, the accuracy of various representations, warranties and covenants made by Alere in the parties’ merger agreement,” Alere said in a statement, adding that “Abbott has requested information from Alere about these and other matters, citing contractual rights to receive information under the merger agreement.”

Alere had reported deteriorating sales for the third quarter of 2015 ending Sept. 30. It announced net income of $200,000 on revenue of $602 million. Last year it restated its 2014 earnings. For the third quarter of 2014, it reported a loss of $98.4 million on revenue of $645 million.

Abbott, which announced late last month the pending acquisition of medical device giant St. Jude Medical in a cash and stock deal worth $25 billion, has come under considerable pressure to make up its mind as to which target it wishes to pursue. Moody’s Investors Service said consummating both deals would triple its debt, and that it would likely downgrade Abbott as a result.

“Abbott will be taking on two of the largest transactions in its history at the same time. Beyond high execution risk, this raises uncertainty about Abbott’s longer-term M&A strategy once it deleverages,” the credit ratings agency said in a recent report.

Should its acquisition by Abbott fall through, it would put Alere in a tough position. Along with the company’s sales decline, its stock is also in a tailspin. Shares of Alere were trading below $40 a share, earlier this month, about a third lower than the $55 a share trading price it had as the Abbott acquisition was announced. Moreover, a variety of law firms have filed class action lawsuits on behalf of shareholders due to the issues swirling around Alere, or have announced that they intend to sue.

Takeaway: Alere’s pending acquisition by Abbott appears to be headed toward a grim end.