Global rapid diagnostic tests company, Alere Inc. (ALR), has recently completed another divestiture. This time, Alere has divested Alere Health and its subsidiaries to Optum – the health services business unit of Minneapolis, MN-based UnitedHealth Group (UNH). The two companies had signed the $600 million cash deal in Oct 2014.
The sale of Alere Health is part of the company’s key strategic objective to divest its non-core operations. With the continued divestment of non-core assets, the company intends to focus on core areas like rapid diagnostics and improve balance sheet strength.
Following the sale of Alere Health to Optum, Alere intends to use the net proceeds from this transaction to reduce the company’s debt. We note that Alere’s total long-term debt (including current portions) stood at $3.79 billion as of Sep 30, 2014. Though this figure is lower than the total debt of $3.84 billion recorded at the beginning of this year, Alere’s debt-to-equity ratio is on the rise. Markedly, the ratio increased to 2:1 as of Sep 30, 2014 from 1.85:1 as of Dec 31, 2013.
Along with accelerating Alere’s progress toward its deleveraging target, the deal with Optum expands the latter’s population health management footprint to improve care delivery.
Alere Health, a subsidiary of Waltham, MA-based Alere, is a $3 billion technology company that provides leading condition management, case management, and wellbeing and wellness services to insurers, employers and health care payers. The addition of Alere’s offerings will complement Optum's consumer-wellness businesses, enabling the delivery of more innovative and comprehensive population health management solutions.
Alere has of late been following a divestment strategy to get rid of non-core assets and focus more on developing its core operations. Apart from paying off debt, Alere expects the divestitures to boost the top line and improve cost structure going forward.
Notably, Alere sold off the Alere ACS unit – its health information exchange system – which accounted for around half of the company’s total expenses in Connected Health. Alere also sold 40% of its stake in Vedalab for roughly $10 million in the third quarter of 2014.
In addition, the company recently divested its vet business unit – Bionote, for around $45 million. Proceeds from all these transactions are being used by management to de-leverage the company.
Alere also boasts a diversified and strong product portfolio. Notably, Alere’s Influenza i A & B Test and HIV Combo Test were both recently granted a waiver by the U.S. Food and Drug Administration (FDA). With the Clinical Laboratory Improvement Amendments, Alere’s tests can now be used across a wide variety of healthcare settings. Given the company’s focus on global market development in addition to its diverse product portfolio, we believe that Alere is positioned to perform well going forward.
However, Alere faces significant competition from large diagnostic companies like Becton, Dickinson (BDX) and Abbott Laboratories (ABT) among others.
Currently, Alere carries a Zacks Rank #3 (Hold).
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