Losing Abbott deal could cost Alere $177 million

Alere warns of dire consequences should its proposed takeover by Abbott Laboratories fall through. Alere probably should have taken Abbott’s $50 million offer to exit their proposed $6 billion merger, because now it might cost the company upwards of $177 million to call it off.

Alere said it has already spent $25.9 million to satisfy creditors perturbed by the months-long delay in filing its 2015 annual report with the SEC, which the company did on Monday. Alere also admitted in the report that it might be sued, and may have to submit to takeover by another company, if the deal with Abbott falls through.

Alere makes diagnostics for a variety of infectious diseases, including HIV, dengue fever, tuberculosis, and malaria. Abbott proposed buying it in February for $56 in cash per share. Shortly thereafter, Alere revealed that it had received a grand jury subpoena from the U.S. Department of Justice related to its sales practices for 2013 through 2015 in Asia, Africa, and Latin America, and to matters related to the U.S. Foreign Corrupt Practices Act. Abbott offered $50 million to break off the deal, but Alere’s directors turned down the offer.

Now Alere says it may have to pay Abbott $177 million to call it off. In the 2015 10-K, Alere cited “material weaknesses” in its internal control over financial reporting for 2014 and 2015. Those weaknesses have not been remediated, the company added, and could continue to impair its ability to report accurate financial information. Management discovered and corrected errors related to its payment of U.S. taxes on foreign earnings for 2014, according to the report.

We did not maintain a sufficient complement of resources with adequate experience and expertise in accounting for income taxes,” the company said.

Alere Abbott Yole

Abbott is not happy about the situation.

Alere’s Form 10-K filing for 2015 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,” the company said in a statement. “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. We continue to await details about Alere’s first half 2016 results and ongoing regulatory matters in jurisdictions around the world.”

Alere expects to file its first-quarter report for 2016 by August 18 and its Q2 report “as soon as is practicable,” the company said in a separate earnings statement. Alere maintains that it expects the Abbott deal to close at the end of 2016.

Alere’s predictions of future problems represent the latest in a string of woes for the company, which also has a toxicology unit that performs drug tests for businesses and governmental agencies. Last month, federal investigators subpoenaed the company’s government-billing records dating back to 2010 for patient samples tested at Alere’s Austin, TX, pain management laboratory.

Alere also previously disclosed that it had received subpoenas in December 2014 from the U.S. Attorney for the District of New Jersey asking for documents relating mostly to billing and marketing practices in toxicology testing, the Wall Street Journal has reported. Most recently, Alere announced it is voluntarily withdrawing a device that tests the blood of patients who take blood thinners, following reports of inaccurate results.