Since Alere’s Rule 2.4 announcement on 6 July 2011, Axis-Shield has released a number of announcements, including its Interim Results for the six months ended 30 June 2011 (the “Interim Results”) and its shareholder circular (the “Defence Document”), none of which, in Alere’s opinion, have revealed any material new information.
Alere is disappointed that neither the Board of Axis-Shield, nor its advisors, have held any discussions or sought to engage with Alere, since the date that Alere announced its firm intention to make an offer for Axis-Shield.
The Board of Alere believes that the terms of the cash offer made by Alere AS Holdings to acquire the entire issued and to be issued share capital of Axis-Shield of 460 pence per Axis-Shield Share (the “Offer”) represents a compelling value proposition with a high degree of certainty.
Between 6 July 2011, being the day Alere announced a possible offer for Axis-Shield and 21 September 2011, being the latest practicable date prior to publication of this Announcement, equity markets have been subject to significant volatility with Axis-Shield’s key industry peers trading on average approximately 21 per cent. lower.
Alere believes that Axis-Shield’s share price is trading at current levels primarily as a result of the Offer and not due to underlying fundamentals.
The Offer represents a substantial premium of approximately 37 per cent. to the Closing Price of 335 pence on 5 July 2011, being the last Business Day prior to the announcement by Alere of a possible offer for Axis-Shield and a significant premium to the target share price that UK research analysts had published in respect of the Company prior to that time.
In contrast with the value certainty provided by the Offer, Axis-Shield Shareholders are being asked to put their faith in possible future value creation by management based on the successful execution of a strategy that has significant execution, regulatory and market risk and uncertainty.
In light of the above, Axis-Shield shareholders may wish to consider the following:
Offer represents certainty of cash at a time of significant economic uncertainty and market volatility
the Offer enables shareholders to realise the value of their shares in cash at a time of continued economic uncertainty and significant stock market volatility;
prior to the announcement by Alere on 6 July 2011, Axis-Shield’s three month weighted average share price was 328 pence per Axis Shield Share. In addition, the share price performance of Axis Shield’s key industry peers has declined on average by approximately 21 per cent. since 6 July 2011;
Significant regulatory and execution risks may remain with the standalone company
Axis-Shield’s predictions for the success of the Afinion platform in the US are predicated on achieving important regulatory milestones. There continues to be significant execution risk in obtaining the required approvals and a lack of clarity on the timing of when these approvals might be obtained;
Alere believes Axis-Shield lacks the global infrastructure, scale or sales force capabilities which may be required to meet its product roll-out ambitions;
No other bidders have publicly announced their interest
currently, no other potential bidder has announced an interest in Axis-Shield despite Alere’s interest in the Company being public since 6 July 2011;
in the absence of an offer, Alere believes that there is a strong possibility that Axis-Shield’s share price would fall significantly below its current share price; and
Alere will remain financially disciplined
Alere will remain financially disciplined and will only pursue acquisitions which would provide an appropriate return to its own shareholders.
The Offer enables Axis-Shield Shareholders to realise the value of their shares in cash at a time of continued economic uncertainty and market volatility whilst avoiding the risks of continuing to hold Axis-Shield Shares.
Risks of continuing to own Axis-Shield Shares
1) Future value creation is, in part, dependent on FDA 510(k) clearance and CLIA-waiver approval for Axis-Shield’s lipid panel assays. Such clearance and approvals may have significant execution risk with outcome and timeline uncertain.
An example of this uncertainty was highlighted by Axis-Shield on 21 December 2010 when the Company confirmed that its most recent CLIA-waiver application on Afinion Albumin/Creatinine Ratio was denied after nearly two years with the FDA.
The Company has also stated that it intends to make a 510(k) submission in “late 2011/early 2012” with analysts assuming that the lipid panel assays will not make a meaningful contribution to revenues until 2013, at the earliest, assuming CLIA-waiver approval is obtained within twelve months following FDA clearance of the 510(k) submission.
2) Will Axis-Shield achieve its potential in the US, the largest point-of–care market in the world, through its distribution network?
Axis-Shield has a limited direct presence in the US. With only 18 direct sales people in the US (as per the Interim Results), Axis-Shield relies upon a third party distributor for placements of its Afinion platform. Alere believes such a distributor-led model is likely to have significant limitations. Given the importance to future growth the Company has placed in the US market, shareholders may wish to ask whether the Company’s limited direct presence and sales force can ensure that its US commercial strategy is a success.
Despite Axis-Shield’s optimistic commentary in its Interim Results on the success of its US sales force and Afinion placements, shareholders should ask if Axis-Shield’s US strategy is working given that Axis-Shield’s US revenues amounted to only 14.9 per cent. of its total revenues in H1 2011 and grew by only 1.9 per cent. from H1 2010.
Alere also notes the press release from ITC Nexus Dx, dated 13 September 2011 that John Sperzel has been appointed as Chief Executive Officer of ITC Nexus Dx, a global provider of Point-of-Care testing systems and advanced diagnostic solutions. John Sperzel was previously the President of Axis-Shield Inc. in the USA, a market that Axis-Shield has stated is important to achieving its growth ambitions.
3) What are the real prospects of an alternative bidder emerging and who might that be, given that Alere approached Axis-Shield on 7 June 2011 and then publicly disclosed its interest in Axis-Shield on 6 July 2011?
No other potential bidder has yet made a public announcement of a possible or firm intention to make an offer for Axis-Shield. It is possible that some potential bidders may be discouraged from making an offer due to economic uncertainty and the stock market’s current volatility.
4) If the Offer were to lapse, where would the Axis-Shield share price be trading?
Prior to the announcement by Alere on 6 July 2011, Axis-Shield’s three month weighted average share price was 328 pence per share.
Alere believes that the current level of the Axis-Shield share price is largely attributable to the Offer and that the Axis-Shield share price may fall significantly below its current level, in line with the recent performance of its industry peers, if the Offer were to lapse.
In fact, in light of the recent economic uncertainty and market volatility, the share price performance of Axis-Shield’s key industry peers has declined on average by approximately 21 per cent. between 6 July 2011 to 21 September 2011, the latest practicable date prior to publication of this Announcement.
Alere would also highlight that, prior to 5 July 2011, being the last Business Day prior to the announcement by Alere of a possible offer for the Company, shares in Axis-Shield have not traded at or above 460 pence per share over the last 10 years.
Axis-Shield Shareholders may wish to consider whether the Defence Document is convincing as to when the Company’s share price will reach 460 pence in the future, in the absence of an offer.
5) Alere will remain disciplined on price and will only pursue acquisitions at a price which would provide an appropriate return to Alere shareholders.
In Axis-Shield’s Defence Document, the Company highlights precedent Enterprise Value/Revenue multiples as an important valuation metric. Alere does not regard this as credible. Not only are revenue multiples less relevant than other valuation metrics which are based on profitability, they fail to take into account the different nature of Axis-Shield’s revenue streams, each with structurally different margin profiles. In particular, Alere believes that Axis-Shield’s distribution business, which comprised approximately 30 per cent. of the Company’s turnover in 2010, has lower margins than its other businesses.
In fact, the Offer represents a compelling last twelve months (“LTM”) Enterprise Value/EBITDA multiple of approximately 16.2x.
In addition, Ron Zwanziger, Chairman, Chief Executive Officer and President of Alere, said during the recent Q2 2011 Alere trading update:
“Investors should expect us to continue to deploy our cash through accretive acquisitions which further expand our global capabilities, but as in the past few quarters, to the extent that acquisitions cannot be made at responsible prices, additional share repurchases will remain an attractive option.”
Alere believes that the Offer is highly attractive to Axis-Shield’s Shareholders and represents a compelling opportunity for Axis-Shield Shareholders to realise the value of their shares in cash at a time of economic uncertainty and market volatility.
Commenting on the Offer, Ron Zwanziger, Chairman, Chief Executive Officer and President of Alere, said:
“There has been no material new information in Axis-Shield’s Interim Results, Defence Document or in any information announced by the Company since then.
Alere is offering shareholders 460p in cash now whereas the Board of Axis-Shield is asking shareholders to place their faith in delivering a strategic plan that contains significant execution, regulatory and market risk and uncertainty, which will take many years to realise.”
Alere reminds Axis-Shield Shareholders that acceptances of the Offer should be received by no later than 1.00 p.m. (London time) / 2.00 p.m. (Oslo time) on 10 October 2011.
Axis-Shield Shareholders should carefully read the offer document posted to Axis-Shield Shareholders on 11 August 2011 (“Offer Document”) in its entirety before making a decision with respect to the Offer. Unless defined herein, certain capitalised terms used in this Announcement shall have the meaning given to them in the Offer Document.
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Jon Russell, Vice President, Finance
Doug Guarino, Spokesman, Press Office
Jefferies International Limited
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(Financial Adviser & Corporate Broker)
Julian Smith (Corporate Broking)
Thomas Rider (Corporate Broking)
Citigate Dewe Rogerson
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Sources and Bases
Unless otherwise stated in this Announcement:
information relating to Axis-Shield has been extracted or derived, without material adjustment, from public sources;
all prices quoted for Axis-Shield Shares have been derived from SEDOL and represent the closing middle market prices of Axis-Shield Shares on the relevant dates;
references to a percentage of Axis-Shield Shares are based on the number of Axis-Shield Shares in issue (as sourced from the Regulatory Information Service announcement released by Axis-Shield on 15 July 2011);
the Offer Price premium calculations have been calculated by reference to the Closing Price of 335 pence per Axis-Shield Share on 5 July 2011, being the last Business Day prior to the commencement of the Offer Period;
figures stated are subject to rounding approximations;
the three month weighted average share price is calculated using both share price and volume data from Bloomberg from 5 April 2011 to 5 July 2011;
The statement referring to the Offer representing a significant premium to the target share price that UK research analysts had published in respect of the Company prior to 5 July 2011 is based on broker research from Peel Hunt (5 July 2011), Collins Stewart (5 July 2011), Seymour Pierce (5 July 2011), Investec (13 June 2011) and Daniel Stewart (13 April 2011);
Axis Shield’s key industry peers being referred to for the indices statement include Abaxis Inc, Alere Inc, BioMerieux S.A., Bio-Rad Laboratories Inc, DiaSorin S.p.A, Immucor Inc, Immunodiagnostic Systems Holdings plc, IRIS International Inc, Meridian Bioscience Inc and Quidel Corp. Share prices have been recorded for the period from 6 July 2011 to 21 September 2011 and sourced from Bloomberg;
the statement regarding the submission of the 510(k) is sourced from 2011 first half pre-close trading update dated 5 July 2011;
the statement referring to Axis-Shield’s CLIA-waiver application on Afinion Albumin/Creatinine Ratio is based on Axis-Shield’s regulatory news announcement dated 2010;
the statement referring to analysts assuming that the lipid panels assays will not make a meaningful contribution to revenues until 2013 are featured in published research reports from Nomura (6 July 2011), Investec (6 July 2011) and Collins Stewart (8 August 2011);
the statement in relation to US revenues amounting to only 14.9 per cent. of its total revenues and growing by only 1.9 per cent. over the same period is sourced from the Axis Shield Interim Results;
the statement referring to Alere’s Offer representing a LTM Enterprise Value/EBITDA multiple of approximately 16.2x is based on the enterprise value calculation stated in Axis-Shield’s Defence Document of 253.0m pounds and a LTM Adjusted EBITDA of 15.6m pounds. A figure of approximately 239.7 million pounds for the equity value of Axis-Shield was calculated by multiplying the proposed offer price and the diluted number of shares including in-the-money options (per the Axis-Shield Annual Report for the year ended 31 December 2010). Axis-Shield’s Consolidated Balance Sheet as at 30 June 2011 shows cash and cash equivalents of approximately 9.0 million pounds, current borrowings and lease finance of approximately 4.0 million pounds, and non-current borrowings and lease finance of approximately 18.3 million pounds. The net debt of Axis-Shield at that date was approximately 13.3 million pounds. The Enterprise Value is calculated by adding 13.3 pounds million to the equity value and equals approximately 253.0 million pounds. The LTM EBITDA of approximately 15.6m pounds is sourced from the adjusted EBITDA metric in the Axis-Shield Annual Report 2010 and Interim Results for the six months ended 30 June 2011. Dividing 253.0m pounds by 15.6m pounds gives an Enterprise Value/EBITDA multiple of approximately 16.2x; and
the statement referring to Axis-Shield’s distribution business comprising approximately 30 per cent. of the Company’s turnover in 2010 is sourced from the Axis-Shield Annual Report 2010.
The Alere Directors and Alere AS Holdings Directors accept responsibility for the information contained in this Announcement save that the only responsibility accepted by them in respect of such information as relates to Axis-Shield (which has been compiled from public records) has been to ensure that such information has been correctly and fairly reproduced and compiled. To the best of the knowledge and belief of the Alere Directors and Alere AS Holdings Directors (who have taken all reasonable care to ensure that such is the case), the information contained in this Announcement is in accordance with the facts and does not omit anything likely to affect the import of such information.
Jefferies International Limited, which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting as exclusive financial adviser to Alere and Alere AS Holdings and no one else in connection with the Offer and will not be responsible to anyone other than Alere and Alere AS Holdings for providing the protections afforded to clients of Jefferies International Limited or for providing advice in relation to the contents of this Announcement, in connection with the Offer or any other matter referred to herein or in the Offer Document.
This Announcement does not constitute an offer to sell or an invitation to purchase or subscribe for any securities or the solicitation of an offer to buy any securities in any jurisdiction, pursuant to the Offer. The Offer is made solely through the Offer Document, which contains the full terms and conditions of the Offer, including details of how it may be accepted. Any acceptance or response to the Offer should be made only on the basis of information in the Offer Document.
The Offer is for the securities of a corporation organised under the laws of Scotland and is subject to the procedure and disclosure requirements of the United Kingdom, which are different from those of the United States. The Offer is being made in the United States pursuant to Section 14(e) of, and Regulation 14E under, the US Securities Exchange Act of 1934, as amended (the “Exchange Act”), subject to the exemptions provided by Rule 14d-1(c) under the Exchange Act and otherwise in accordance with the requirements of the Code. Accordingly, the Offer is subject to disclosure and other procedural requirements, including with respect to withdrawal rights, the offer timetable, settlement procedures and timing of payments that are different from those applicable under US domestic tender offer procedures and laws.
It may be difficult for US holders of Axis-Shield Shares to enforce their rights and any claim arising out of the US federal securities laws, since Axis-Shield is located in a non-US jurisdiction, and some or all of its officers and directors may be residents of a non-US jurisdiction. US holders of Axis-Shield Shares may not be able to sue a non-US company or its officers or directors in a non-US court for violations of US securities laws. Further, it may be difficult to compel a non-US company and its affiliates to subject themselves to a US court’s judgment.
The receipt of cash pursuant to the Offer by a holder of Axis-Shield Shares may be a taxable transaction for US federal income tax purposes and under applicable state and local income tax laws, as well as under foreign and other tax laws. Each holder of Axis-Shield Shares is urged to consult his independent professional adviser immediately regarding the tax consequences of acceptance of the Offer.
In accordance with and subject to the applicable laws and regulatory requirements of the United Kingdom and pursuant to Rule 14e-5(b) of the Exchange Act, Alere and/or Alere AS Holdings and/or its or their nominees or brokers (acting as agents) may from time to time make purchases of, or arrangements to purchase, Axis-Shield Shares other than pursuant to the Offer. These purchases, or arrangements to purchase, may occur either in the open market at prevailing prices or in private transactions at negotiated prices and shall comply with applicable rules in the United Kingdom and applicable United States securities laws. In addition, in accordance with and subject to the applicable laws and regulatory requirements of the United Kingdom and the United States, the financial advisors to Alere and Alere AS Holdings, or their respective affiliates and separately identifiable departments, may make purchases of, or arrangements to purchase, Axis-Shield Shares outside of the Offer or engage in trading activities involving Axis-Shield Shares and various related derivative transactions in the normal course of their business. Any information about such purchases will be disclosed as required in the UK and will be available from the Regulatory Information Service on the London Stock Exchange website, www.londonstockexchange.com. This information will also be publicly disclosed in the United States to the extent that such information is made public in the United Kingdom and in Norway as required by law or regulation.
This Announcement has been prepared for the purpose of complying with English law and the Code and the information disclosed may not be the same as that which would have been disclosed if this Announcement had been prepared in accordance with the laws of other jurisdictions outside the United Kingdom. The release, publication or distribution of this Announcement in certain jurisdictions may be restricted by law. Persons who are not resident in the United Kingdom or who are subject to other jurisdictions should inform themselves of, and observe, any applicable legal or regulatory requirements. Any failure to comply with the applicable requirements may constitute a violation of the securities laws of any such jurisdiction. To the fullest extent permitted by applicable law, the companies involved in the Offer disclaim any responsibility or liability for the violation of such restrictions by any person.
Neither the US Securities and Exchange Commission nor any securities commission of a state in the United States has (a) approved or disapproved of the Offer; (b) passed upon the merits or fairness of the Offer; or (c) passed upon the adequacy or accuracy of the disclosure in this press release. Any representation to the contrary is a criminal offence in the United States.
The availability of the Offer to Axis-Shield Shareholders who are not resident in the United Kingdom may be affected by the laws of the relevant jurisdictions in which they are resident. Persons who are not resident in the United Kingdom should inform themselves of, and observe, any applicable requirements.
Unless otherwise determined by Alere AS Holdings, this Announcement and the Offer is not, and will not be made, directly or indirectly, in or into any jurisdiction where to do so would violate the laws in that jurisdiction (a “Restricted Jurisdiction”) or by use of any means or instrumentality (including, without limitation, telex, facsimile transmission, telephone, internet or other forms of electronic communication) of interstate or foreign commerce, or of any facility of a national securities exchange of any Restricted Jurisdiction. Unless so determined by Alere AS Holdings, the Offer will not be capable of acceptance by any such use, means or instrumentality or facility of any Restricted Jurisdiction.
Copies of this Announcement will not be, and must not be, directly or indirectly, mailed or otherwise forwarded (including, without limitation, by telex, facsimile transmission, telephone, internet or other forms of electronic communication), distributed or sent in, into or from any Restricted Jurisdiction.
Alere AS Holdings reserves the right to elect, with the consent of the Panel (where necessary), to implement the acquisition of Axis-Shield by way of a court-approved scheme of arrangement in accordance with Part 26 of the Companies Act 2006. In such event, the acquisition will be implemented on substantially the same terms, subject to appropriate amendments, as those which would apply to the Offer.
Forward Looking Statements
This Announcement contains statements about the Alere Group and the Axis-Shield Group that are or may be forward looking statements. All statements other than statements of historical facts included in this announcement may be forward looking statements. Without limitation, any statements preceded or followed by or that include the words “targets”, “plans” “believes”, “expects”, “aims”,” intends”, “will”, “may”, “anticipates”, “estimates”, “projects” or, words or terms of similar substance or the negative thereof, are forward looking statements. Forward looking statements include statements relating to the following: (i) statements relating to the expected benefits of the acquisition to the Alere Group and/or the Axis-Shield Group; (ii) future capital expenditures, expenses, revenues, earnings, synergies, economic performance, indebtedness, financial condition, dividend policy, losses and future prospects; (iii) business and management strategies and the expansion and growth of the Alere Group’s and/or the Axis-Shield Group’s operations and potential synergies resulting from the Offer; and (iv) the effects of government regulation on the Alere Group’s and/or the Axis-Shield Group’s business.
Such forward looking statements involve risks and uncertainties that could significantly affect expected results and are based on certain key assumptions. Many factors could cause actual results to differ materially from those projected or implied in any forward looking statements, including risks relating to the successful combination of Axis-Shield with Alere; higher than anticipated costs relating to the combination of Axis-Shield with Alere or investment required in Axis-Shield to realise expected benefits and facts relating to Axis-Shield that may impact the timing or amount of benefit realised from the acquisition that are unknown to Alere. Due to such uncertainties and risks, readers are cautioned not to place undue reliance on such forward looking statements, which speak only as of the date hereof. Each of Alere and Alere AS Holdings disclaims any obligation to update any forward looking or other statements contained herein, except as required by applicable law.
Nothing herein contained shall be deemed to be a forecast, projection or estimate of the future financial performance of any member of the Alere Group, the Axis-Shield Group or the Combined Group following completion of the Offer unless otherwise stated.
Dealing Disclosure Requirements of the Code
Under Rule 8.3(b) of the Code, any person who is, or becomes, interested in 1 per cent. or more of any class of relevant securities of the offeree company must make a Dealing Disclosure if the person deals in any relevant securities of the offeree company. A Dealing Disclosure must contain details of the dealing concerned and of the person’s interests and short positions in, and rights to subscribe for, any relevant securities of the offeree company save to the extent that these details have previously been disclosed under Rule 8. A Dealing Disclosure by a person to whom Rule 8.3(b) applies must be made by no later than 3.30 p.m. (London time) on the Business Day following the date of the relevant dealing.
If two or more persons act together pursuant to an agreement or understanding, whether formal or informal, to acquire or control an interest in relevant securities of an offeree company, they will be deemed to be a single person for the purpose of Rule 8.3.
Details of the offeree and offeror companies in respect of whose relevant securities Opening Position Disclosures and Dealing Disclosures must be made can be found in the Disclosure Table on the Takeover Panel’s website at http://www.thetakeoverpanel.org.uk, including details of the number of relevant securities in issue, when the offer period commenced and when any offeror was first identified. If you are in any doubt as to whether you are required to make an Opening Position Disclosure or a Dealing Disclosure, you should contact the Panel’s Market Surveillance Unit on +44 (0)20 7638 0129.
A copy of this Announcement will be made available free of charge, subject to certain restrictions relating to persons resident in Australia, South Africa, Japan or any other Restricted Jurisdictions, on Alere’s website at http://investor.alere.com by no later than 12.00 noon (London time) on 23 September 2011 and will remain available during the course of the Offer.
SOURCE Alere Inc.