Abbott Laboratories filed suit to terminate its $5.8 billion purchase of Alere Inc., citing setbacks since the deal was signed in January that it says have significantly eroded the value of the medical-test maker.
The news sent Alere shares falling as much as 11 percent on Wednesday, and they were down 7.7 percent to $36.79 at 1:26 p.m. in New York. Alere called the lawsuit “entirely without merit,” and said in a statement that it has complied with all of the terms under the merger. Shares of Abbott Park, Illinois-based Abbott fell less than 1 percent to $38.20.
The lawsuit is the latest twist in an acquisition that’s been troubled almost from the start. In February, Alere disclosed a delay in filing its financial results with securities regulators because of revenue recognition problems in China and Africa. That marked the beginning of a drumbeat of bad news as the company said it received subpoenas from the U.S. regarding bribery investigations and billing practices, restated earnings, pulled a product off the market and had its diabetes division excluded from the Medicare health insurance program after billing for patients who had already died.
The complaint, filed under seal Wednesday in Delaware Chancery Court, claims that Abbott has the right to terminate the transaction because the setbacks’ cumulative effect constitutes a material change in Alere’s prospects. A redacted copy of the suit will be available later this month under the court’s rules.
‘Negative Developments’
“Alere is no longer the company Abbott agreed to buy 10 months ago,” Abbott spokesman Scott Stoffel said in a statement. “These numerous negative developments are unprecedented and are not isolated incidents brought on by chance.”
While Alere acknowledged challenges, the Waltham, the Massachusetts-based company said Wednesday that setbacks this year didn’t constitute a material change and insisted that the deal would close as originally agreed.
“As Abbott well knows, none of the issues it has raised provides it with any grounds to avoid closing the merger,” Alere said in a statement. “Alere will take all actions necessary to protect its shareholders and to compel Abbott to complete the transaction in accordance with its terms.”
If Abbott prevails in a court battle, it would be the first time material changes at a target company have led to the involuntary termination of a deal in Delaware court, according to Kai Liekefett, an attorney who has worked on similar cases at Vinson & Elkins LLP and isn’t involved in the conflict between Alere and Abbott.
“It looks like they have a number of issues here that, taken together, could very well constitute a material adverse effect,” Liekefett said in a telephone interview. “It would not surprise me if a Delaware court would find a material adverse effect in this instance. In fact, I find it more likely than not. If ever I wanted to exit a deal, I would hope for facts like these.”
Conversation Starter
While major, unexpected events often occur during acquisitions, they typically lead to price negotiations rather than trips to court, Liekefett said. The lawsuit could be a tactic to start a conversation, he said.
“This is just an escalation,” he said. “Abbott might still be interested in buying Alere, just not at this price. They also have to determine if they can get comfortable with the government investigations and restatement risks.”
Abbott’s suit is likely to be heard by Delaware Chancery Court Judge Sam Glasscock III, who has overseen earlier litigation concerning the deal.
In June, Glasscock concluded that Energy Transfer Equity LP could back out of a $33 billion merger with rival pipeline operator Williams Cos because of tax problems tied to the combination. Tulsa, Oklahoma-based Williams is now suing Dallas-based Energy Transfer for more than $10 billion in damages. In response, Energy Transfer is seeking to force Williams to pay $1.5 billion in fees tied to the deal’s failure.
Dragging Feet
In August, Alere sued to compel Abbott to pursue U.S. antitrust clearance and close the transaction, claiming Abbott was intentionally dragging its feet to derail the deal and focus on its pending $25 billion acquisition of St. Jude Medical Inc. The two sides were working with a mediator to settle the dispute.
Abbott filed its own suit in November, claiming that Alere violated terms of the agreement by hiding information relating to the bribery investigations, overseas operations, and U.S. billing practices. While the two sides agreed to settle the suit, with Alere providing the documents, none have yet been provided, Stoffel said.
“We have attempted to secure details and information to assess these issues for months, and Alere has blocked every attempt,” he said. “This damage to Alere’s business can only be the result of a systemic failure of internal controls, which combined with the lack of transparency, led us to file this complaint.”
Recent Articles on M&A
Source: Bloomberg.com
