Not a done deal

Alere acquires stake in Axis-Shield, but the Dx test developer rejects possible takeover

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WALTHAM, Mass.—Medical diagnostics company Alere Inc. inAugust purchased a 6.4-percent stake in Axis-Shield PLC as part of anunsolicited $375 million offer for the company, but at press time, it remainsto be seen if its efforts will be enough to complete a takeover of the company.
Meanwhile, two of Axis-Shield's top-10 shareholders—ArtemisInvestment Management and Aviva Investors, the asset management arm of insurerAviva—say Alere's $7.60 per share offer undervalues the maker of testingdevices for conditions including diabetes and rheumatoid arthritis.
In late August, a group of shareholders large enough tothwart Alere's takeover bid rejected the offer. According to reports, the groupincluded Aviva, Artemis and Axis-Shield's own directors, which together ownmore than 10 percent of the company's stock.
Alere had set a goal of gaining 90 percent of shareholderapproval, meaning in effect that its cash bid is stalled at its current price,unless one of the investors were to change its mind.
Axis-Shield was created in 1999 through the merger of Scottishfirm Shield Diagnostics and Norway's Axis Group.
Alere wants to buy Axis-Shield for its point-of-caretechnology—which provides immediate, portable and convenient diagnostics nearthe site of patient care. Alere's Cholestech LDX machine, which tests forcholesterol levels, competes with Axis-Shield's Afinion system.
Alere acquired a total of 3.2 million shares of Axis-Shield,which develops and makes in-vitro diagnostic tests. Alere began circlingAxis-Shield in June, making an offer for the Dundee, Scotland-based company.
However, Axis-Shield has rejected the cash offer on thebasis that it "fundamentally undervalues the company and its future prospects." 
In August, Axis-Shield Chairman John Brown launched themedical testing kit maker's defense against the takeover bid by saying the firmdid not need a larger parent company to sell its machines.
According to Brown, the company had already sold 10,000 ofits Afinion machines—which can run several tests on a single sample—and anadditional 40,000 units of its Nycocard equipment, working with companiesincluding Physician Sales & Services with its 750 sales staff in the UnitedStates.
Brown told The Scotsman recently that the company hasan excellent commercial strategy. He notes that "to have 10,000 Afinionmachines out there is an incredible performance."
"We can get our products out there—that's not a problem," hesays. "In emerging markets, we're promoting our Nycocard machine. So we'redoing pretty well at getting our equipment out there."
Brown acknowledges that there may be a price at whichAxis-Shield's board would enter discussions with its suitor, but he declined todetail a specific figure.
"The board is always aware of its responsibility (toshareholders)," he says. "There may be a value at which we feel it'ssufficiently interesting to permit someone to indulge in discussions with us,but we don't feel it's there at the moment."
Alere's bid also may lead to competition, prompting otherbidders to emerge, says Sebastien Jantet, an analyst with Investec Securities.
"It looks to us like Alere is trying to take advantage ofthe current market turbulence to get Axis on the cheap," Jantet told TheScotsman. "We remain of the view that Alere is a serious acquirer, butthink investors should hold fire until we hear what Axis has to say and we seeif today's offer flushes out any further interest."
Axis-Shield officials told ddn that they could notprovide any additional comment as a result of the Takeover Code.
"The offer fundamentally undervalues the company and itsfuture prospects," Axis-Shield said in a statement in August. "The board hasfull confidence in the company's strategy and management to continue to deliversignificant shareholder value."
The company said it will make a further announcement "in duecourse."
While the news puts a crimp in Alere's effort, it doesn'tkill the deal.
Sebastien Jantet, an analyst at Investec Securities, said ina statement that a better offer could boost the changes of a deal and slapped aprice of more than $400 million on the company.
"Whilst Alere now owns around 9 percent of Axis, the deal isfar from done," Jantet says. "From a tactical perspective, persuading Alere topay up will either require another bidder to emerge or shareholders to dig intheir heels."
"In order to get to the 90 percent threshold, I think in allprobability Alere will have to come back with an improved offer," adds ChrisGlasper, an analyst at Brewin Dolphin.
Glasper says in a statement that an offer "north of $9.09 ashare may be appropriate."
Mark Niznik, a fund manager at Artemis, added that a rivalbidder could still emerge, highlighting Abbott, Roche and Siemens as possiblebuyers. None of the three companies has commented on their interest.

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