By Soyoung Kim
NEW YORK May 21 An activist investor in Alere
Inc wants the health diagnostics and services company to
explore a sale of its drug testing business, which it believes
could fetch as much as $2.5 billion and help Alere pay down
debt, two people familiar with the matter said on Tuesday.
Alere, which has a $2.1 billion market value but has nearly
$3.8 billion in long-term debt, has come under pressure from
investment firm Coppersmith Capital Management, which disclosed
a 5.8 percent stake earlier in May and urged the company to
restructure its portfolio to boost shareholder value.
Coppersmith, founded by former partners of now-liquidated
activist fund MMI Investments, has already said publicly that
Alere should sell or close its struggling health management
business, which it had built up through acquisitions worth $1.8
billion - with $1.4 billion of that amount already written off.
In addition, the investor told Alere privately that the
company should also consider selling its toxicology business for
drug abuse testing, a deal that could generate $2 billion to
$2.5 billion in proceeds, the sources said. They asked not to be
identified because the matter is not public.
Representatives for Coppersmith declined to comment, while
Alere did not respond to requests for comment.
Alere's toxicology business offers drug testing products and
services to hospitals, clinics, law enforcement agencies and
rehabilitation centers and helps them detect drug or alcohol
abuse. Larger rivals Quest Diagnostics Inc and
Laboratory Corporation of America Holdings also make
drug-testing products and services.
Alere itself toyed with the idea of selling the unit in the
past. Chief Executive Ron Zwanziger said at the JPMorgan
healthcare conference in January 2011 that the company had a
"fair amount of debt" on the balance sheet and could opt to sell
the toxicology business if needed to pay down debt.
While Alere does not break down results for its toxicology
unit, the business is estimated to have $600 million in annual
sales and $200 million in earnings before interest, tax,
depreciation and amortization (EBITDA), the people said.
Based on multiples for previous deals in the industry, the
Alere unit could fetch 12 times EBITDA in a sale, they added,
saying the proceeds would allow Alere to pay off its senior
Selling the profitable toxicology unit would trigger a
sizeable tax. But Alere could offset any tax hit by also selling
or closing its health management business, whose value has been
written down significantly over the years and as a result, the
sale of which would generate a tax benefit, the people said.
Waltham, Massachusetts-based Alere, which makes a range of
diagnosis tools such as home pregnancy tests and fertility
monitoring kits, expanded its disease management with the $900
million acquisition of Matria Healthcare in 2008.
The New York-based hedge fund, however, has argued that
diagnostics and health management are different businesses, and
is asking the company to reverse its acquisition strategy of the
past several years. Coppersmith also nominated three candidates
to Alere's board.