Mediation efforts between Abbott Laboratories (ABT) and Alere (ALR) have broken down, Alere said in a Sept. 26 SEC filing. With the failure of the talks, Alere will likely proceed with a lawsuit in the Delaware Court of Chancery where it it trying to force Abbott to complete its $5.6 billion purchase of Alere. The Waltham, Mass.-based provider of point-of-care testing sued Abbott last month, claiming that the Abbott Park, Ill.-based medical device and diagnostics company has delayed in obtaining antitrust approval for the deal in an effort to kill the transaction, which has an April 30 drop-dead date. Neither company immediately returned a request for comment.
Abbott agreed to pay $56.00 a share for Alere on Feb. 1, a 49% premium, but the deal soon ran into trouble. On March 15, Alere stock fell by 8% when it announced that it had received a U.S. Department of Justice subpoena about the company's sales practices in Africa, Asia and Latin America, which may have raised issues under the Foreign Corrupt Practices Act. And on April 20, Abbott CEO Miles White was equivocal about his commitment to the Alere deal in an earnings call where he noted that Alere was delayed in filing its annual report with the SEC. (Alere finally filed its annual report on Aug. 8.)
Alere stock fell by 12% to $43.36 a share on White's comments and has traded in that range since, suggesting that arbitrageurs believe the deal will likely collapse. The target's stock then plunged to $31.47 a share on July 27 when the Wall Street Journal published a story reporting that the DOJ had sent Alere a subpoena for billing records and practices of the the company's toxicology unit, which provides drug testing for employers and government bodies. Alere has since recovered somewhat and spiked slightly to $43.94 from yesterday's close and then fell steadily through morning trading to $43.06.
Abbott shares also fell from an opening at $42.25 to $42.10.
The collapse of the mediation has thrown the matter back to Vice Chancellor Sam Glasscock III, who granted Alere's motion to expedite the matter on Sept. 2 but strongly encouraged the companies to attempt the mediation. Alere claimed in complaint that Abbott has cooled on the deal after agreeing to pay $25 billion for St. Jude Medical (STJ) on April 28 and is dragging its feet in obtaining antitrust approval for the Alere deal by giving the Federal Trade Commission an extraordinary amount of time to review the deal.
In its Aug. 31 opposition to Alere's motion for expedition, Abbott called the matter "a tactical disagreement among the parties about how best to secure antitrust clearance" and termed Alere's suit "nothing but a publicity stunt. Certainly it is not a serious lawsuit."
Alere's lawsuit and Abbott's response were ostensibly about obtaining FTC approval for the merger, but the case will likely come to center on whether Abbott has the right to walk from the deal under the terms of the merger agreement. Alere's problems with INRatio, its hand-held blood coagulation monitoring system and alleged improprieties at its toxicology unit were public well before Abbott agreed to buy Alere, but the DOJ issued its FCPA subpoena thereafter.
The case is the second one this year that Glasscock has heard involving a troubled public company deal. In June the judge, whose courthouse is in Georgetown, De., found for Energy Transfer Partners (ETE) in a closely watched case where ETE claimed it had the right to walk from its agreement to buy Williams Cos. (WMB) because ETE was unable to obtain a favorable tax opinion on the deal from its lawyers at Latham & Watkins LLP.
James Hurst, Andrew Kassof and Brenton Rogers of Kirkland & Ellis LLP in Chicago are advising Abbott in the litigation along with John O'Quinn in the firm's Washington office and William Savitt, George Conway and Carrie Riley of Wachtell, Lipton, Rosen & Katz in New York. Abbott is using William Lafferty of Morris, Nichols, Arsht & Tunnell LLP in WIlmington as local counsel. Kirkland's Daniel Wolf, David Feirstein, Laura Sullivan and John Kupiec were M&A counsel. Abbott turned to Roger Altman, Andrew Steinberg, Bernhard Sakmann, Arun Abraham, Kenny Yung and Stu Francis of Evercore Partners Inc. for banking advice on the deal.On the litigation, Alere is using Bruce Birenboim, Andrew Gordon and Jaren Janghorbani of Paul, Weiss, Rifkind, Wharton & Garrison LLP in New York along with Stephen Lamb, a former Vice Chancellor on the Court of Chancery, and Daniel Mason in the firm's Wilmington office. Paul, Weiss's Scott Barshay is the lead M&A partner on the deal. He moved to the firm from Cravath, Swaine & Moore LLP in April. Michael Pittinger, T. Brad Davey, and Matthew Davis of Potter, Anderson & Corroon LLP in Wilmington are Delaware counsel to Alere. William Shepherd and Robbie Huffiness of JPMorgan Securities LLC provided banking advice.