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Abbott and GE abandon USD 8.1bn diagnostic sale

The USD 8.1bn sale of Abbott Laboratoriesí blood and assay diagnostics units to General Electric Healthcare fell through on 11 July after the two US companies failed to resolve issues over the transfer of the businesses

The USD 8.1bn sale of Abbott Laboratories' blood and assay diagnostics units to General Electric Healthcare fell through on 11 July after the two US companies failed to resolve issues over the transfer of the businesses.

In a statement, Abbott said that the companies had mutually agreed to terminate the sale of its core laboratory and doctors' office diagnostics that tests for and monitors disease from blood and other samples.

GE, which is biggest maker of medical-imaging technology globally, was to purchase the operations arm, which racks up USD 2.7bn in annual sales and products, including devices which test blood proteins for conditions including HIV.

Abbott wanted to sell in order to narrow its focus on its pharmaceutical concerns. The US number three pharmaceutical firm will now keep the diagnostic units, according to a company spokesperson.

The purchase would have enabled CEO Jeffrey Immelt's efforts to build GE Healthcare's strategy of selling products that detect diseases early. Some investors said GE can now find better ways to spend the money.

T Rowe Price & Associates analysts said that GE was right not to buy Abbott's diagnostic division: "It was a business in decline, and GE should be buying back their stock."

GE spokesman Russell Wilkerson said: "We remain committed to early health and continue to invest in that strategy. We were unable to come to terms."

Wilkerson assured investors that the deal termination would not adversely affect GE's 2007 profit forecast.

Abbott's also added that its earnings forecasts for 2007 and 2008 would remain unaffected: "We believe this remains a highly valuable business, and our intent is to manage it within Abbott."

In Q4 2006, Abbott bought US cardiovascular specialists Kos Pharmaceuticals in a deal worth USD 3.7bn, or $78 per share. The move underscored Abbott's strategy to retain its position in the lipid management market and will give the company access to Kos Pharma's extensive range of clinical development programmes.

On the diagnostic arm news, Abbott's shares fell USD 2.01, or 3.9 per cent, to rest at USD 51.20 in evening trading. The firm added USD 0.62 to reach USD 53.21 in New York Stock Exchange composite trading. GE rose USD 0.30 to finish up at USD 38.20.

Abbott's acquisition debt forces Fitch to downgrade rating
International ratings research company Fitch has said that its Abbott ratings apply to approximately USD 12.5bn of unsecured securities and commercial paper. The Rating Outlook was revised to "Negative" from "Stable". The Negative Outlook reflects the higher leverage and need for the company to address the debt load in the near term.

Fitch adds that leverage is expected to decrease by the end of 2008, benefiting from full absorption of Kos' assets, as well as the potential market introduction of the Xience drug-eluting stent, the key asset acquired along with Guidant.

Fitch said that it recognised the company's diversified product portfolio, which minimised concentration risk, including pharmaceuticals, vascular stenting systems and glucose monitoring devices.

In Q2 2006, Abbott paid USD 4.1bn in cash for Guidant's vascular business. The deal also would see Abbott pay Boston Scientific milestone payments of USD 250m on FDA approval of Guidant's drug-eluting Xience stent, and an additional payment of USD 250m upon a similar approval in Japan. Abbott also provided Boston with a five-year, USD 900m interest-bearing loan. Abbott purchased approximately 64 million shares of Boston stock for USD 1.4bn, which represented less than five per cent of the company.

In Q4 2006, Abbott bought US cardiovascular specialists Kos Pharmaceuticals in a deal worth USD 3.7bn, or USD 78 per share. The move underscored Abbott's strategy to retain its position in the lipid management market and will give the company access to Kos Pharma's extensive range of clinical development programmes.

Fitch still says that the company will reduce its acquisition activities due to higher debt levels in the short-term. However, Fitch predicts that the company will continue to bolster its current product offering through strategic acquisitions and licensing agreements.

18th July 2007

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