Deals

Brooke Sutherland is a Bloomberg Gadfly columnist covering deals. She previously wrote an M&A column for Bloomberg News.

Going against its gut may come back to haunt Abbott Labs.   

The medical-device maker's $8.4 billion takeover of Alere has been a thorn in its side for months, but the problems came to a head last week as the target company filed a lawsuit alleging Abbott has breached the companies' merger agreement by not getting antitrust clearance in a timely manner. Alere's complaint, which it disclosed last week, was unsealed on Wednesday.

Abbott has said the suit is "nonsense" and that it's continuing to work toward necessary regulatory approvals. Its lawyers also called the legal action a "publicity stunt." There are indeed many colorful details and accusations. I won't get into them all here, but the most provocative is Alere's claim that Abbott CEO Miles White threatened to make life a "living hell" for Alere if it didn't walk away from the deal and said he'd spare no expense in trying to find justification to terminate it.

Deal or No Deal?
Alere's string of bad headlines has pushed its share price well below the $56 that Abbott offered as investors bet on the takeover falling apart.
Source: Bloomberg

It's an interesting response from White, if true, considering that Abbott arguably should have had the good sense to walk away itself before the ink was dry on the transaction.  The lawsuit provides a fresh reminder that Abbott was aware of a number of issues at Alere beforehand, including SEC subpoenas, accounting questions and a device facing a potential recall. True, the extent and number of government investigations that Alere is facing has grown since the deal was announced in February, but Abbott saw enough red flags to have "significant" reservations earlier on in the negotiating process. And yet, the company still decided to go ahead anyway. It even raised its offer twice after reportedly expressing concerns.

Abbott did allegedly request one condition for closing the deal -- that Alere resolve a 2012 subpoena from the Office of Inspector General related to its Triage testing products. But when Alere balked at this, it says Abbott caved and took it out of the agreement. 

You can see Alere's point in bringing this up. There are new investigations with broader scope, but some of them touch on the same general issues as the SEC inquiry that was already underway at the time it agreed to sell to Abbott. For what it's worth, many analysts dismissed that investigation as not that big of a deal so Abbott wasn't the only one to feel comfortable with the issue. But at this point, Abbott management is probably wishing it had heeded that earlier inner voice of caution that had raised questions about the deal when there was still time to break off talks. Eventually, White may have to answer to shareholders as to why he didn't.

Track Record
Abbott's recent M&A forays have been bigger than what is typical for the company since its split from AbbVie in 2013.
Source: Bloomberg

Somewhat troublingly, there were additional "issues" that Alere says it told Abbott it was investigating internally. We don't know what those are because the text is redacted. Furthermore, in April, White told the company he had concerns about an issue, the details of which are also redacted. Are there more shoes to drop at Alere and more regrets to come for Abbott?

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. The background details for the merger negotiations were previously disclosed in Alere's preliminary proxy materials. 

To contact the author of this story:
Brooke Sutherland in New York at bsutherland7@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net