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Abbott Attempted to Terminate Merger With Alere

NEW YORK (GenomeWeb) – Abbott Laboratories attempted to terminate its pending merger with Alere, Alere said late on Thursday. 

The firm has twice delayed filing its 2015 earnings report, leading Abbott to inform Alere that "it has serious concerns about, among other things, the accuracy of various representations, warranties and covenants made by Alere in the parties' merger agreement," Alere said. Abbott even offered to pay Alere a termination fee of $30 million to $50 million to pay for Alere's transaction expenses.

Alere's board "promptly rejected that request," the company said. 

In more recent discussions between the two companies, Abbott has told Alere that it is committed to fulfilling its obligations under the terms of the buyout. "Alere further stated that it is completely confident that there is no basis for a termination of the merger agreement and that the merger will be consummated in accordance with its terms," the firm added.

"There is a never a dull moment with this stock," said Leerink analyst Dan Leonard in a note to investors on Friday morning. "If [Abbott] no longer feels [Alere] the 'perfect fit' for its business, it could press the Dept. of Justice investigation and 10-K delay in a material adverse event clause argument in court." However, he added that Alere may "defend assuming the historical revisions are immaterial."

Leonard added that Alere's stock would likely fall on the news, but the bank believes the "odds of Abbott's consummation of its proposed acquisition of Alere are overly discounted in the market, and think the upside outweighs the downside." Leerink currently rates Alere's stock an Outperform.

Alere first delayed filing its 2015 earnings in February after saying it had to analyze aspects of revenue recognition in Africa and China as well as potential implications on evaluation of internal controls over financial reporting for the year. The second delay came in March after the firm said it had received a subpoena from the US Department of Justice for "documents relating to, among other things, sales, sales practices and dealings with third parties (including distributors and foreign governmental officials) in Africa, Asia, and Latin America and other matters related to the Foreign Corrupt Practices Act."

Alere's shares were rocked again last week after speculation arose that Abbott may be backing away from its planned $5.8 billion acquisition of the firm. Abbott CEO Miles White said in response to an analyst's question during the company's first quarter financials conference call last week that it was "not appropriate" to comment on the planned acquisition.

Abbott added more fuel to the fire Thursday when it announced it would acquire St. Jude Medical for $25 billion, though White did add that Abbott's "financing plan contemplates broadly completion of both transactions — the capacity to do that, the capacity to fund with both debt and equity all of the things that are in our radar screen as a company, including our liquidity, et cetera."

In a filing with the US Securities and Exchange Commission also late Thursday, Alere reported some of its creditors have agreed to waive certain defaults that may result from its delayed 2015 financial results filing, in exchange for certain fees. However, other creditors have already filed default notices.

According to its filing, on April 22, Alere signed an amendment with lenders Goldman Sachs and Healthcare Financial Solutions to their secured credit agreement, which was originally signed on Jun. 18, 2015. The firm reported that the creditors are waiving defaults that may occur from the delay of its 2015 earnings filing, as well as from any restatement of financial results from 2013, 2014, and 2015, or any changes it may have to make resulting from the current audit of its 2015 10K filing. The creditors have also agreed to extend Alere's deadlines for delivery of the 2015 financial results.

In exchange, Alere said it has agreed to pay certain fees and expenses, including an initial consent fee of 0.125 percent of the sum of each lender's aggregate principal amount of its outstanding term loans and revolving credit commitment. "The company expects to seek consents from holders of each of the company's 6.500 percent senior subordinated notes due 2020, 6.375 percent senior subordinated notes due 2023, and 7.250 percent senior notes due 2018 … to extend the deadline for delivery of certain financial information and to waive certain provisions of the applicable indentures under which the notes were issued," Alere said.

However, according to the filing, Alere has received trustee notices in connection with the 6.500 percent notes and the 6.375 percent notes, though not for the 7.250 percent notes. "Under each of the applicable indentures, the company has 60 days from the time of receipt of a trustee notice to cure the related default, with such 60-day period concluding on May 20, 2016 in the case of 6.500 percent notes and the 6.375 percent notes, before such default would give rise to an event of default under the applicable indenture," Alere said.

Bloomberg News reported earlier this week that "people with knowledge of the matter" had told them that the firm had received a default notice from some of its bondholders. "Some of the company's senior lenders were told, over a private reporting system, of a March 21 default notice, the people said," according to Bloomberg. "While the notice itself wouldn't give lenders the right to immediately demand repayment, the default claim adds to a turbulent two months for the company."

The Bloomberg report further noted that the source had revealed that the bondholder default notice could shorten the time Alere has to file its 10K to just a few weeks, after which lenders could demand repayment.

Alere's shares closed at $43.50 on the Nasdaq on Thursday. They were down nearly 8 percent to $40.18 in pre-market trading on Friday, and continued to fall steadily after the opening bell.