Alza, Abbott Labs Call Off Merger Agreement

The two health care companies chalked up the failed deal to an inability to reach agreements with the FTC.
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Updated from 5:51 p.m. EST

After nearly six months of uncertainty,

Alza

(AZA)

and

Abbott Laboratories

(ABT) - Get Report

announced after the close of trading Thursday that their proposed merger fell through.

In the end, the two health care companies chalked up the failed deal to an inability to reach an agreement with the

Federal Trade Commission

.

"We are obviously disappointed that we were unable to complete this transaction," said Miles White, chairman and chief executive of Abbott. "Together with Alza, we have worked diligently over the last five months to successfully resolve the issues with the FTC, but could not reach a solution that was in the best interest of our shareholders."

The FTC was concerned about the competitive overlap between

Viadur

, Alza's prostate cancer treatment which is still in development, and

Lupron Depot

, a prostate cancer treatment which is marketed by

TAP Pharmaceuticals

, a joint venture between Abbott and Japan's

Takeda Chemical Industries

.

In an interview, Rhonda Luniak, an Abbott spokesperson, said that an unidentified buyer had been found to purchase the U.S. rights to Viadur and complete the

U.S. Food and Drug Administration

registration, market the product in the U.S. and assume the manufacturing responsibilities. However, "that solution was not sufficient to the FTC and all other solutions were not in the best interest of shareholders," she said.

However, Tom Burnett, the founder of the research house

Merger Insight

, believes the two companies are merely using the FTC as a scapegoat. "If there were FTC difficulties, they could have solved them," he said. "They just wanted an excuse to terminate the agreement without paying termination fees to each other." Merger Insight does not rate or underwrite companies.

Luniak responded, "That is absolutely untrue. The deal would have closed if we had gotten clearance from the FTC." She did not disclose the deal's break-up fee and emphasized that it had no bearing on the situation.

The companies may have wanted out because the value of the deal has dropped dramatically. Abbott offered to buy Alza in June for stock then valued at $7.3 billion, but Abbott shares have declined almost 20% since then. Alza shareholders were to receive an exchange ratio of 1.2 shares of Abbott common stock for each share of Alza, bringing the deal's value down now to $5.9 billion. Burnett estimated that Abbott may not have wanted to increase the ratio, despite the stock's plunge. The shares fell as the company wrangled unexpectedly with the FDA over manufacturing and distribution problems in its diagnostics division.

Abbott, based in Abbott Park, Ill., closed Thursday at 36 5/16, up 1 1/8, or 3%. In after-hours trade it was up a further 2 11/16, or 7%, to 39. Meanwhile, Alza, based in Mountain View, Calif., closed down 3 3/16, or 8%, at 36 7/16. After hours it was down 7 9/16, or 23%, to 28.