Through The Fly's Eyes: Abbott Labs & General Electric

From Kevin Shult of Theflyonthewall.com






Abbott can’t get rid of troubled diagnostics unit

Abbott Laboratories (ABT) will not sell its primary in-vitro and point of care diagnostics businesses to General Electric (GE) as planned, both companies say, because an agreement on the final terms of the $8.13B proposal could not be met.

Despite being approved by regulators in the U.S. and Europe, GE says that it was in both of their best interests to terminate it. The move would have given GE its first entry into the laboratory testing space.

The Wall Street Journal believes that the breakup may have been related to the continued regulatory problems at Abbott’s Irving, TX manufacturing facility. The unit has been problematic for Abbot, with $100M in fines back in 1999. The FDA called Abbott’s devices “adulterated” and “misbranded,” which could have made GE nervous about taking on regulatory issues.

Some analysts say the deal’s failure is a good thing because they think GE was overpaying. “Health care,” says JP Morgan’s Stephen Tusa in the Wall Street Journal,“is still a place that we want to see them invest.”

Abbot said the decision to cancel the contract would have no impact on their previously issued second-quarter or full-year guidance, excluding specified items. JP Morgan told investors this morning to buy shares of Abbot on the weakness from the news, saying that while the break-up is a setback, the company’s broader plan is still intact.

Summer Street Research believes the lack of a deal between GE and Abbott could fuel speculation that one of them may now be interested in pursuing Ventana Medical Systems (VMSI), the medical equipment supplier that recently rejected a $3 billion hostile offer from Roche Holding Ag (RHHBY).