There were good feelings all around when Abbott Laboratories said in February it would pay $5.8 billion for Alere Inc., a Waltham company that had emerged as a global leader in “point-of-care” medical tests performed at doctors’ offices, pharmacies, and patients’ homes.
The sale, at a rich premium, “is a great outcome for Alere and its people,” its chief executive, Namal Nawana, crowed in an interview.
Abbott chief executive Miles White assured stock analysts that Alere “is a great business with a complementary set of products that we’re going to be able to leverage.”
Eight months later, the upbeat tone and cordiality have given way to acrimony, and the deal itself appears to be on life support. As Alere shareholders prepare to gather at the Westin Waltham hotel Friday to vote on the acquisition, the parties are caught up in a welter of lawsuits and federal probes that could take months or more to untangle.
The unraveling of a large-scale health care merger deal in the absence of objections from antitrust regulators is rare, according to industry watchers. But they also say relations between the two would-be partners could now be frayed beyond repair.
In public, both sides say they remain committed to the transaction. In a statement Thursday announcing Chinese authorities had signed off on the Alere-Abbott combination, Nawana said Alere executives “remain confident that the merger will proceed.” When pressed by analysts in a Wednesday conference call, Abbott’s White said “we are pursuing all the necessary regulatory approvals for the deal,” but he did not commit to any timetable for completing it.
Both executives declined to be interviewed. But as court documents reveal, there is clearly mutual rancor, mistrust, and uncertainty as to whether the merger will close.
Alere was stunned by the announcement in late April that Abbott planned to buy St. Paul medical device maker St. Jude Medical Inc. for $25 billion, a deal that raised questions about Abbott’s capacity to finance both buyouts.
Abbott, for its part, was blindsided by disclosures that Alere was the subject of Justice Department probes into its overseas business practices, its billing of Medicare, and the reliability of a product line.
In an August lawsuit, Alere charged Abbott, based outside Chicago, with scheming to torpedo the merger and threatening to create a “living hell” for Alere executives if they didn’t take a walkaway fee of $30 million to $50 million. Abbott dismissed the allegations as “fiction” but have demanded a raft of information from Alere about the three federal investigations.
Meanwhile, in a class action complaint filed against Alere last month, a group of investors alleged its senior executives made misleading statements and omitted key information about its business operations so that Nawana and chief financial officer James Hinrichs could receive one-time payments totaling $29 million through the sale of the company. Regulatory filings confirm they would be entitled to special payments if there is a change of control at Alere.
Alere spokeswoman Jackie Lustig said, “Alere believes the lawsuit to be completely without merit, and we’ll be moving to dismiss the complaint next month.”
The overhanging litigation and investigations have left it unclear what a vote to approve the merger by Alere shareholders would mean in practical terms.
Despite the appeal of adding Alere’s products to the Abbott business, the recent federal inquiries and other developments suggest that “if the deal gets done, Abbott will have to clean up a lot of the trash, so to speak,” said Danielle Antalffy, a medical devices analyst for Boston health care investment firm Leerink Partners, who believes the parties will eventually come to terms.
Dealmaking specialists said the continued public commitment of both parties to the deal could be a tactic to strengthen their hands if they eventually negotiate a lower price or breakup fees. But if the deal collapses, they said, it could hurt the credibility of both businesses.
“When a publicly announced deal goes off the rails, it’s damaging to both companies and it’s disruptive to employees,” said Erik Gordon, a professor at the University of Michigan’s Ross School of Business. “Both sides have invested a lot in going forward. If the deal doesn’t close and you’re the seller, you’re damaged goods. If the deal doesn’t close and you’re the buyer, you’ve damaged your reputation for closing a deal. So there’s normally a lot of momentum to get these deals done.”
The sparring between Abbott and Alere “really gets your attention,” said Harry Glorikian, a Lexington health care consultant who cited the growing importance of point-of-care testing in a health care industry that is becoming decentralized. “It’s an attractive market if they can agree on the merger,” he said. “But it’s not a good thing when you’re getting married and one partner doesn’t want to go forward. It’s not a good way to start a relationship.”