It seems so long ago. Back in February 2016, Abbott (NYSE: ABT) and Alere Inc. (NYSE: ALR) announced their $5.8 billion deal. Abbott’s board okay’ed paying $56 per common share of Alere, representing a 51% premium to the company’s close on January 28, 2016. Abbott also assumed $2.6 billion of debt.
The combination was expected to create a premier point-of-care testing business and to strengthen Abbott’s diagnostics presence. Alere’s main business is its point-of-care diagnostics and services, which are focused on the areas of infectious disease, cardio-metabolic disease, and toxicology. Point of care testing is a $5.5 billion segment, and one of the fastest growing in vitro diagnostics segments.
Then things went south for Alere. In March 2016, the company failed to file its annual 10-K for the fiscal year ended December 31, 2015, because of a continuing internal investigation into the timing of revenue recognition in Africa and China for the years 2013, 2014 and 2015. The result was that, in July, Alere acknowledged the timing of certain revenue transactions had been incorrectly recorded and revised financial statements were filed on August 8th.
But the troubles didn’t stop there. Later in July, Alere was hit with a subpoena from the Justice Department regarding its Toxicology Services division. The federal agency sought records related to Medicare, Medicaid and Tricare billings dating back to 2010 for patient samples tested at its Austin, Texas pain management lab.
Spurned Target Sues
Abbott, in the meantime, was making noises to the media that it was no longer interested in Alere. On April 28, 2016, Abbott announced it would acquire St. Jude Medical (NYSE: STJ), a major cardio-vascular device maker, for $30.7 billion, which included $5.7 billion of net debt. The deal closed on January 4, 2017.
The acquisition enhances Abbott’s global scale and further diversify its portfolio in products and revenue sources. The combined portfolio will include top positions in high-growth markets and a robust, industry-leading pipeline.
Small wonder that, on August 26 of that year, Alere filed a complaint against Abbott in Delaware Chancery Court, seeking to compel Abbott “to fulfill its obligations under the terms of the merger agreement.”
Its shareholders approved the merger on October 20, 2016, still expecting to receive $56 per common share in cash. That day, Alere’s stock traded at a high of $45.01, far below the $53.90 per share ALR stock hit on February 2, 2016, the day after the original deal was announced.
In December, Abbott filed suit in the same Delaware court to terminate the deal in December 2016, arguing that Alere’s problems had damaged its business, including “the government eliminating the billing privileges of a substantial Alere division, the permanent recall of an important product platform, multiple new government subpoenas (including two new criminal subpoenas)”, and the whole 10-K and revenue restatement debacle.
Reality Sets In
After months of negotiations (really, wrangling), the two companies agreed to go forward with the transaction, but at a lower price per share.
On April 14, 2017, Abbott announced it will now pay $51 a share, a 9% decrease from its original offer of $56 per share. The new price is a $500 million drop from the original price, from $5.8 billion to $5.3 billion, including Alere’s $2.6 billion in debt.
The original multiples were 2.3x revenue and 10.5x EBITDA. With this new deal and some updated financial numbers, the multiples have changed to 2.2x revenue and 16.7x EBITDA.
Both companies have dropped their respective lawsuits against the other. Every transaction should have such a happy ending.
