Abbott said today it filed a lawsuit seeking to end its proposed acquisition of Alere, citing a “substantial” loss in Alere's value in the nearly one year since the two companies disclosed plans to merge.
Over the past year, shares of Alere had fallen 42% from a high of $54.11 on February 1—the day the acquisition was announced—sliding to $31.47 on July 27 before climbing back slowly, to yesterday’s close of $39.86, still down 26% from the high.
The decline follows several developments since the merger announcement of February 1, including multiple government subpoenas. The company said on July 27 that its Alere Toxicology Services unit received a U.S. Department of Justice subpoena on July 1, seeking records related to Medicare, Medicaid and Tricare billings dating back to 2010 for patient samples tested at the company’s Austin, TX, pain management lab.
In March, the company disclosed in a regulatory filing that it received a Justice Department grand jury subpoena related to “sales, sales practices, and dealings with third-parties (including distributors and foreign governmental officials) in Africa, Asia, and Latin America.”
Other reasons cited by Abbott for its lawsuit include:
- Last month’s decision by the Centers for Medicare & Medicaid Services (CMS) to revoke the billing privileges of Alere’s Arriva Medical division, following the submission of 211 claims for deceased patients between April 15, 2011, and April 25, 2016. Alere criticized CMS’ decision, citing “the relative small number of claims at issue and the lack of harm to the Medicare program.”
- The permanent recall of a product platform. In July, Alere told customers it planned to remove the INRatio® and INRatio2® PT/INR Monitoring System, which includes the INRatio® or INRatio2® PT/INR Monitor and the INRatio® Test Strips, from the market and discontinue manufacture of the product line.
- Alere’s five-month delay in filing its 10K annual report, coupled with restatement of its 2013–2015 financials. The delay was originally attributed to revenue recognition problems in China and Africa, before the disclosure of the federal investigation of its overseas operations.
“These numerous negative developments are unprecedented and are not isolated incidents brought on by chance,” Scott Stoffel, divisional vp of external communications, Abbott, said in a statement. “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 filing this complaint.”
Abbott filed its lawsuit today in Delaware Chancery Court, following what it said was Alere blocking several efforts by Abbott to secure details and information about the issues.
Alere halted trading in its shares ahead of Abbott’s announcement, then issued a statement declaring Abbott's lawsuit “entirely without merit.”
“Alere has fully complied with its contractual obligations under the merger agreement and is highly confident that the merger will be completed in accordance with the terms set forth in the merger agreement,” Alere stated. “Alere will take all actions necessary to protect its shareholders and to compel Abbott to complete the transaction in accordance with its terms.”
The statement echoed earlier arguments by Alere that the setbacks did not constitute a material change warranting termination of the acquisition. Alere sued Abbott in August, seeking to close the deal by forcing Abbott to pursue clearance in accordance with federal antitrust law.
Abbott countered last month with its own lawsuit, contending that Alere failed to disclose information relating to billing practices, bribery investigations, and overseas operations, in violation of the companies’ merger agreement. The companies agreed to settle that suit, yet Alere has since failed to provide documents, Abbott told Bloomberg News.
“Alere is no longer the company Abbott agreed to buy 10 months ago,” Stoffel added.