Shareholders sue Alere to block Abbott buyout

(Reuters) – Diagnostics company Alere (NYSE:ALR) has been hit with a securities fraud lawsuit accusing it of artificially inflating its share prices ahead of the Feb. 1 announcement of its proposed $5.8 billion acquisition by Abbott (NYSE:ABT).

The shareholder lawsuit, filed on Thursday in federal court in Boston, accused Alere of misleading investors by stating that its financial reporting followed generally accepted accounting principles. The plaintiffs, a group of individual investors, cited a federal probe into the company’s accounting for overseas sales in arguing that Alere had not adhered to those principles.

Jackie Lustig, a spokeswoman for Alere, declined to comment on the lawsuit.

Based in Waltham, Massachusetts, Alere makes tests for infections such as HIV, tuberculosis and malaria.

Alere’s shares rose more than 45% to $54.11 when the Abbott acquisition was announced, though the stock price later fell again on disclosures in February and March that federal authorities were looking into its sales and accounting practices overseas.

The lawsuit said Alere failed to disclose “material adverse facts” about the company that eventually threw its merger with Abbott into doubt.

Alere’s shares dropped about 18% to $40.51 on Wednesday after Abbott Chief Executive Officer Miles White, speaking on a post-earnings conference call, declined to respond directly when asked whether he would reaffirm Abbott’s commitment to the Alere deal.

The deal has been approved by the boards of both companies but is subject to approval of Alere shareholders. White said on Wednesday he did not know when the shareholders would vote.

On Feb. 26, Alere disclosed that it had received a subpoena from the U.S. Securities and Exchange commission asking for information about revenue accounting and sales in Africa. The company said its annual report would be delayed while it looked into revenue recognition in Africa and China but did not say that any errors had been found.

On March 15, Alere said it had received a grand jury subpoena from the U.S. Department of Justice for documents relating to its sales and dealings with third parties in Africa, Asia and Latin America.

The lawsuit seeks damages for investors who bought Alere’s shares between May 9, 2013, and April 20, 2016.

Lawyers for the investors could not immediately be reached for comment.

The case is Godinez v Alere Inc et al, U.S. District Court, District of Massachusetts, No 16-cv-10766

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