Alere Files Delayed 2015 Results, Fight With Abbott Goes On

  • Shares rise 2.8 percent, company revises past results
  • Abbott says information provided still isn’t sufficient

Alere Inc. submitted its delayed annual report and revised its financial filings for the past two years, concluding an internal review of its financial statements though finding no immediate resolution to its troubled $5.8 billion acquisition by Abbott Laboratories. 
 
The medical-testing device maker corrected what it called “immaterial errors” to its filings for the 2013 and 2014 fiscal years and the first three quarters of 2015, according to a statement Monday. None of these revisions impacted cash flow or cash balances and primarily related to the timing of revenue recognition, the company said. However, Alere also concluded in its U.S. Securities and Exchange Commission filing that there were “material weaknesses” in internal controls over revenue recognition and income taxes.

The long-awaiting filing may not end months of back-and-forth between Alere and Abbott about the takeover. Abbott has tried to get out of the deal after Alere in March disclosed a Justice Department probe related to its overseas businesses and later reported a second investigation into its U.S. billing practices. Alere reiterated Monday that Abbott has no basis to back out.

No Resolution

With the filing completed, Alere said it expects the merger to close by the end of the year. The companies traded statements Monday, with neither budging from their positions.

The filing “does not eliminate Abbott’s concerns about its business controls and practices given the litany of issues that have come to light since our agreement was announced,” Abbott spokesman Scott Stoffel said. “Alere has also failed to provide an adequate explanation for the extended filing delay and has refused to provide detailed and relevant information on several outstanding issues.”

Alere responded that “While Abbott is free to express concerns about anything it wants, it should not imply that Abbott has any basis to avoid closing the merger,” Alere said in an e-mailed statement. “There is absolutely no basis whatsoever for Abbott to do so.”

Alere rose 2.8 percent to $38.50 at 12:03 p.m. in New York. The stock has been trading significantly below Abbott’s $56-a-share offer since the first disclosure of the U.S. investigation.

Endgame

The endgame could be a lawsuit by Abbott to try and break the deal or renegotiate the price it’s paying, according to analysts.

Abbott is “still not 100% happy,” said Nicholas Jansen, an analyst with Raymond James Financial Inc. “With Alere in compliance with all terms of the merger agreement, litigation would be the only way for Abbott to potentially terminate or renegotiate the terms.”

The revisions, plus the investigations and other issues, could be enough for Abbott to make its case, Kristen Stewart, a Deutsche Bank AG analyst, said in a note to clients Monday. “With material weaknesses in financial reporting, one could continue to question the accuracy of the financials going forward,” she wrote.

Abbott could also try and get a better price. “It’s going to be awfully hard for them to break the deal,” so Abbott could be pushing to negotiate a price cut, said Mark Massaro, an analyst at Canaccord Genuity Inc. who advises buying the stock. He said he had doubts about Abbott’s chances for a lawsuit or a better value, though. “There’s probably not enough here for them to do either.”

Revised Financials

Monday’s SEC filing is the final, audited version of information that Alere provided on July 14 to meet its obligations to bondholders, who have a legal right to gauge its financial performance. Alere disclosed at the time that it had incorrectly accounted for some revenue in Africa and China from 2013 through 2015 -- for example by recognizing payments when products were shipped to distributors but not yet paid for.

The Waltham, Massachusetts-based company said it sifted through millions of e-mails, reviewed hundreds of customer contracts and tested thousands of transactions to ensure that their new figures accounted for their sales at the appropriate time. Revenue for 2015 was $2.46 billion, according to the filing, in line with the preliminary range it gave on July 14.

For the 2014 and 2013 fiscal years, revisions resulted in decreases in revenue of $13 million and $8 million, respectively, the company said.

In 2015, Alere had a net loss from continuing operations of $12.8 million, revised from a preliminary gain of $10 million and $25 million, the company said in the statement Monday. The revisions reflected charges incurred from the previously announced withdrawal of its INRatio product, which is used to calibrate and monitor doses of the blood thinner warfarin. The company previously said the recall would cost $70 million to $90 million in 2016; the change shifts some of those costs to last year, according to the company.

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