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Another Rock Falls on Alere-Abbott Merger

- By Alberto Abaterusso

Another rock falls on the road to the Alere Inc. (ALR) and Abbott Laboratories (ABT) merger agreement, and that in itself is already a long and winding one.

Abbott Laboratories launched a lawsuit against Alere for having not complying with the certain conditions contained in the $7.9 billion agreement.

According to what is learned from an email that Scott Stoffel, Abbott spokesman, wrote to The Deal (as reported by TheStreet), the purpose of this legal action undertaken by the American health care company headquartered in Lake Bluff, Illinois, is not to break the deal but rather to get from Alere all the documentation and information necessary for the agreement to be completed, in compliance with the provisions contained in the agreement itself.

The information requested by Abbott is related to Alere's business practices that are under investigation for federal anti-corruption, anti-kickback and U.S. health care laws and that showed up after that the merger agreement was reached on Jan. 30. Once Abbott has obtained these documents and information, it can understand the issues, how to deal with these properly in order to have a faster resolution and finally complete the deal.

A mediator has also been chosen in order to bridge the differences that separate the two companies from finding a conclusion to the agreement.

This legal action launched by Abbott came after that, on Aug. 26, in the Court of Chancery. Alere sued the American health care company for buying time in obtaining antitrust approval for the deal to put an end to the transaction. The drop-dead date is April 30, 2017.

Furthermore in a reviewed version of Alere's complaint against Abbott that was made public on Aug. 30, Alere alleged that it received from Abbott an offer of between $30 million and $50 million to cancel the deal.

On Oct. 21, 77% of Alere's shareholders approved the merger with Abbott:

"The overwhelming support we received from our shareholders today is recognition of the significant value that the combination of Alere and Abbott unlocks for our global customers, employees and shareholders." - Namal Nawana, president and CEO of Alere

If the corporate transaction materializes, Alere will become a subsidiary of Abbott Labs, and its shareholders should receive $56 per common share in cash.

Alere is a provider of health information through its segments of professional, consumer and corporate diagnostic tests.

The company has a market capitalization of $3.30 billion with approximately 86.74 million shares outstanding. Alere traded for $36.6 per share Friday afternoon.

Alere is not a dividend issuer. The amount of a substantial indebtedness is the main reason that impeded the company from distributing part of its earnings to its shareholders in the form of cash dividends.

The total long-term debt amounted to $2.9 billion as of the second quarter. Cash and short-term investments amounted to $506.24 million for a total net debt of $2.47 billion.

Long-term debt to equity (MRQ) is 145.83 versus an industry average of 43.37.

Disclosure: I have no positions in any stock mentioned in this article.

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This article first appeared on GuruFocus.