Can Abbott kill the Alere deal?

At this point Alere has a choice between two kinds of near-oblivion. Either it is absorbed into Abbott, becoming part of the Illinois giant’s diagnostics division, or Abbott succeeds in breaking the merger agreement, leaving Alere to cope with its woes alone – and its woes are such that if it remains independent it will be a shadow of its former self.

Abbott would contentedly leave Alere to its fate. It is suing in an attempt to terminate the merger, stating that Alere is not the company it was in February when the deal was agreed. And a look back at the series of fiascos that have engulfed Alere this year shows just how strong Abbott’s case is (see table below).

Return of the Mac

Abbott’s case rests on proving that a “material adverse change” in Alere’s long-term prospects has occurred. These so-called Mac clauses were invoked to call off several mergers during the recession, including the acquisition of US student loans company Sallie Mae by a group including Bank of America and JPMorgan Chase; the banks cited the College Cost Reduction and Access Act of 2007 and the drying up of easy credit following the 2007 subprime mortgage crisis as the events that altered the outlook for Sallie Mae.

So what events can Abbott point to as causing Macs to Alere’s prospects? A decent lawyer ought to be able to build a case based on a combination of: Alere’s failure to file its 2015 annual report on time; a criminal subpoena under the US Foreign Corrupt Practices Act; the permanent withdrawal of an allegedly inaccurate blood coagulation test; another criminal subpoena concerning Medicare fraud; and a separate case of alleged Medicare fraud that led to coverage of its diabetes products being revoked.

And all that inside nine months.

Even so, Abbott will not find it straightforward to walk away from this deal. A less willing acquiree might simply agree a break fee with Abbott, pocket the cash and go about its business, but Alere has clearly concluded that the best outcome it can hope for is for the acquisition to close.

Last Chancery

Indeed, the same court that will hear Abbott’s case for termination of the transaction is already playing host to a suit brought by Alere against Abbott with the aim of compelling it to close the deal. Alere is going to fight this all the way, even to the extent of undergoing a court case that will surely highlight a litany of its disasters.

And it might succeed. Pulling its INRatio and INRatio 2 anticoagulant monitoring systems in July is expected to cost Alere $90m this year and the loss of Medicare coverage of its Arriva business might lose it even more.

But those figures, even added to the other alarming events of the last nine months, might not add up to a Mac. The question will be decided by the Delaware Chancery Court. And here, as with the other obvious question – what on earth Abbott was thinking when it decided to buy Alere – there are no clear answers.

To contact the writer of this story email Elizabeth Cairns in London at [email protected] or follow @LizEPVantage on Twitter