), a medical products company focused on integrating rapid
diagnostics with health management, disclosed that it plans to
offer $450 million of senior notes due 2018, subject to market
and other conditions.
In a bid to finance the outstanding $250 million aggregate
principal amount of 7.875% senior notes due 2016 and redeem
outstanding revolving borrowings amounting to $97.5 million,
Alere plans to issue notes through a private placement. The
amount left will be utilized for working capital and general
corporate purposes. This implies that debt refinancing is not the
only intention of Alere and it wants to ensure sufficient
liquidity through this offering.
According to Alere, the rest of the amount will be used to
finance potential buyouts, share repurchases and capital
expenditures. The company can also make post-closing payments or
earn-out payments for acquisitions completed earlier.
As far as earn-out payments are concerned, Alere has a long way
to go before the company pays off its contingent considered
obligations. For 2012, Alere's maximum earn-out payment with
respect to the Amedica takeover is $6.9 million and for the
Diagnostik acquisition is $1.8 million. The maximum earn-out
payment for the eScreen acquisition is $70 million through 2014
and for the MedApps takeover is $22 million through January 2015.
The DiagnosisOne takeover requires Alere to make earn-out
payments of $33 million. However, we note that these earn-out
payments depend on the company's ability to meet certain
Alere still has a number of outstanding debts including senior
subordinated debts due in 2016 and 2018. The company exited third
quarter 2012 with a long-term debt of approximately $3.6 billion.
Exiting the third quarter, Alere had a debt-to-capital ratio of
61.34% compared with peers' mean of 30.88%. The company's
debt-to-equity ratio of 217.91% towers over the peer mean of
44.67%. These financial ratios reflect Alere's high dependence on
debt financing. Moreover, a higher interest expense associated
with higher outstanding debt might drag the company's bottom
We currently have a long-term 'Neutral' recommendation on Alere
which carries a short-term Zacks #3 Rank (Hold rating). Our
cautious outlook on the stock is supported by the tough
competitive landscape which the company faces with
Becton, Dickinson and Company
ALERE INC (ALR): Free Stock Analysis Report
BECTON DICKINSO (BDX): Free Stock Analysis
To read this article on Zacks.com click here.