ALR - Alere Inc

[DonFanucci]

Is anyone else following the Abbott-Alere drama? Alere doesn't look very expensive standalone and the odds of the deal closing still look fairly high to me.

[DonFanucci]

It seems like if the ABT-ALR deal breaks ALR will trade around $33-34/share (after merger-arbs rotate out of the stock). It looks like it traded at an above peer multiple prior to all of its problems. If you take a couple turns off of the peer forward EV/EBITDA multiple to account for its current issues I get ~$34/share. Plus you have the fact that the deal process was competitive meaning that management is ready to sell and there were other bidders ready to buy. Then you have the ABT deal for $56/share and it still seems quite likely to me that the deal will go through or ABT will try to negotiate a lower price. Anti-trust issues could require a divestment that gives ABT the chance to break. The stock has been climbing from $36 which I think was a good time to get in, but the risk reward is still interesting. Also, it's got a lot of non-monetary entertainment value.  :)

 

Great Podcast on it: http://www.stitcher.com/podcast/rangeley-capital/the-rangeley-capital-podcast/e/oracles-larry-ellison-wants-to-own-it-all-45617753

 

[Guest roark33]

My one comment is people always seem to overestimate where something will trade if a deal breaks.  Go back and listen to Rangeley talk about where VSLR would trade if the SUNE deal broke.  Their lowest possible number was 5 bucks.  VSLR has been under 3 most of the time since the deal broke and is right around 3.3 or so now. 

[DonFanucci]

My one comment is people always seem to overestimate where something will trade if a deal breaks.  Go back and listen to Rangeley talk about where VSLR would trade if the SUNE deal broke.  Their lowest possible number was 5 bucks.  VSLR has been under 3 most of the time since the deal broke and is right around 3.3 or so now.

 

Thanks, I appreciate the feedback. I do like that podcast a lot but I ultimately based my thoughts on my own work, I just happen to agree. I will say that I do share your concerns. When a deal breaks it seems like merger-arbs overreact a large % of the time. I wouldn't be too surprised to see it trade into the 20s immediately after (it fell off a cliff to ~31.50 after hours when everyone thought the deal was toast). My $33 estimate is more of an estimate of where I think it will trade after the merger-arbs rotate out and regular shareholders take over.

 

I am totally unfamiliar with VSLR or how something like VSLR should be valued, but I do know that if someone gave me ALR and VSLR and asked me to estimate where they would trade I would have a MUCH harder time with VSLR. It's hugely cash flow negative, has negative EBITDA well in excess of revenues, and doesn't make a gross profit? TTM sales are $90mm and based on an article I read it was valued at $2B. It's seems so sentiment driven that I'm not surprised they were off by a lot. Now if I were off by that much on ALR, barring further negative events, I would welcome the opportunity to pick up shares based on absolute valuation.

 

ALR did release the deal proxy yesterday with all sorts of juicy info in the background section. There was a PE firm that was bidding just north of $50 back in January.

https://www.sec.gov/Archives/edgar/data/1145460/000119312516681410/d103445dprem14a.htm

[Guest roark33]

I listened to the ALR CEO at a conference years ago when they were starting their acquisition spree.  Didn't pass the "you could date my daughter test..."

 

 

[DonFanucci]

ALR has filed a lawsuit against ABT to get them to perform with respect to their anti-trust obligations. Lots more juicy info and drama drama drama. I think I'd rather have the ALR CEO date my daughter after reading about the ABT CEO. Or nix them both and set her up with a nice mid-level accountant with job security.  :-*

 

Some highlights from my reading:

 

ABT's CEO threatened to spare no expense in making life a "living hell" for ALR, including drowning ALR in a sea of forensic information requests. He then made good on his threats by making hundreds of individual requests and having his legal team conduct adversarial deposition-style interviews of ~30+ Alere employees. ALR has turned over 1 million pages of documentation. Then Mr. White threatened to make public anything negative that ABT found, an obvious breach of confidentiality. Speaking of breaching confidentiality, the misleading WSJ story regarding the immaterial DOJ subpoena was leaked to the WSJ mere weeks after ALR disclosed it to ABT. A coincidence I'm sure. ABT also repeatedly CCed ALR's auditors on each request to ALR, including with attachments of confidential documents- another confidentiality breach. The crux of the lawsuit is really centered around ABT's dealings with the FTC and antitrust regulators around the globe. Despite receiving the second request 3 months ago, ABT has not even started the process of responding. ABT also entered into an agreement with the FTC before discussing it with ALR (breaching the merger agreement) that unnecessarily extends the review timeline in the hope that they can run out the clock on the deal. ABT has not even submitted the initial antitrust filings for Japan and Brazil, and has not even started the process of investigating the potentially required divestitures. Stand up guys over at Abbott.

 

This is likely just the beginning.

[DonFanucci]

ABT is divesting its eye health unit to J&J for $4.3B: http://www.cnbc.com/2016/09/16/johnson-johnson-to-buy-abbott-medical-optics-for-433-billion-in-cash.html

 

This could be taken as a sign that ABT is getting ready to digest both ALR and STJ. ALR is up about 20% from the 36-37 range when this was the most interesting. There's still a long way up to 56 but now a long way down to 33. I've lightened up on my position but the drama is still as interesting as ever.

[writser]

Does anybody have something sensible to say about this name? Looks like the market is getting nervous about a second deal amendment / cancellation. Last week there was a bit of a flash crash and subsequent partial recovery (supposedly due to a misunderstood memo?!). I can't find any news. ALR is now trading around $48.50 with deal at $51 for a >5% spread. Decent if the deal closes in 2017 (and it was anticipated to close in Q3).

 

The cash tender for preferred Alere stock was extended by 20 days. 90% of preferred was already tendered. Doesn't seem like a deal breaker either. I'm probably going to buy a few shares.

[writser]

Spread is now under 1.5%. Given deal risks and the fact that this was not a high-conviction pick so I closed my position for a ~4% gain in two weeks.